Skip to content.

Home

Allens Arthur Robinson

Focus: Fraudulent non-disclosure and avoidance in a TPD policy

11 February 2010

In brief: The New South Wales Supreme Court has clarified its approach in cases of fraudulent non-disclosure in life insurance policies and the meaning of 'totally and permanently disabled'. Partner Matthew Skinner (view CV) and Lawyer Simone Collier report.

How does it affect you?

  • The case clarifies the approach of the courts to cases of fraudulent non-disclosure in the context of a life insurance policy and the situations where an insurer can avoid a contract on these grounds.
  • The case also provides insurers with guidance on the application and interpretation of TPD policies.

The facts

The defendants in this case1, Westpac Securities Administration Ltd and Westpac Life Insurance Services Ltd (together, the Westpac insurers), issued the plaintiff, Mr Kenan Berk, with a total and permanent disability policy. Under the policy terms, the sum of $500,000 was to be paid if an insured became 'totally and permanently disabled by any injury, disease or sickness...which has prevented the Insured Person from working for six consecutive months and which in our opinion is likely to prevent them from ever working in any occupation for which they are reasonably qualified...'.

The plaintiff sought indemnity under the policy as a result of a back injury sustained in November 2005 while undertaking building work. The Westpac insurers refused to indemnify Mr Berk on the basis of fraudulent non-disclosure of past injuries, which they argued attracted section 29(2) of the Insurance Contracts Act NSW (1984) (the Act) and, further, that if the contract was not avoided under the Act, that Mr Berk did not fulfil the requirements of the definition of total and permanent disability under the policy.

Return to top

The issues

Mr Berk had a history of serious accidents resulting from workplace injuries. Mr Berk sustained these injuries, namely to his back, in January 1990, June 1993 and again in November 2005. After the 1990 and 1993 injuries, Mr Berk managed to overcome his conditions and to work satisfactorily in various positions, including after March 1996 when Dr Gupta, Mr Berk's general practitioner, had certified that Mr Berk was totally and permanently unfit for his pre-injury work as a shunter in a blast furnace at BHP Port Kembla and later as a conference organiser at a BHP conference centre. Mr Berk subsequently undertook various roles including the operation of a fashion business, property developer and running a patisserie he purchased in 2001. It was accepted that Mr Berk worked long hours and was required to undertake various physical activities in these roles.

The critical issue concerned the completion of the application form and personal statement that were required in order for the Westpac insurers to issue the policy. The personal statement included a section relating to medical history. The statement required the applicant to answer 'Yes' or 'No' to various questions concerning past health conditions and employment history. The statement revealed that an answer of 'No' was given to each of these questions, although it was common ground that the plaintiff's medical history required a number of the questions to be answered 'Yes'. Mr Berk accepted that if he had in fact answered 'No' to these questions, that such answers would have been deliberately false and dishonest to his knowledge.

Mr Berk argued that the Westpac insurers' agent, Mr Buxton, had filled in the personal statement on his behalf, and further that although Mr Berk had disclosed his medical history to Mr Buxton, that Mr Buxton had deliberately not disclosed Mr Berk's medical history to the relevant underwriter in the personal statement by answering 'No' to the various questions. The court rejected Mr Berk's evidence concerning the completion of the personal statement as untrue, finding Mr Berk a witness without credibility.

Return to top

Fraudulent non-disclosure

Section 29(2) of the Act, as it applies to life insurance, provides:

If the failure [as set out in s 29(1)] was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

The ability of the Westpac insurers to avoid the policy under s29(2) of the Act depended upon their ability to show that they would not have entered into the policy had there been disclosure of Mr Berk's medical history.

The Westpac insurers adduced evidence from a number of senior underwriters who gave evidence that, if Mr Berk's medical history had been disclosed, it was likely that the risk would not have been written on the basis that it was unacceptable. The underwriters considered the policy and Westpac's underwriting guidelines applicable at the time the risk was written. The underwriter's evidence was not challenged and was accepted by the court. On this basis, Justice Nicholas held that Westpac was entitled to avoid the policy under s29(2) of the Act.

Return to top

The claim under the TPD policy

The court also considered whether Mr Berk was totally and permanently disabled within the meaning of the policy. It was accepted that Mr Berk had suffered an injury that prevented him from working for six consecutive months. The question was whether Mr Berk could ever work again in any occupation for which he was reasonably qualified because of education, training or experience.

The Westpac insurers argued that Mr Berk had not demonstrated that his condition would not improve so that, over time, he would be able to do the work for which he was qualified. A number of doctors testified that the plaintiff was permanently unfit for physically demanding work in which he had previously been employed, as well as that there was the possibility his condition would improve over time.

The Westpac insurers asked the court, in assessing Mr Berk's future prospects, to take into account his ability to overcome pain and depression to work satisfactorily. It was argued that Mr Berk's history indicated that it was likely he would return to work in the future. The court gave that consideration 'little weight'.

The court found that the medical evidence overall supported that there was no more than a chance or possibility, at an unspecified time, that Mr Berk's condition would improve and that, as a result, the plaintiff would be entitled to a benefit under the policy except for the fraudulent non-disclosure.

Return to top

Analysis

The decision provides clarification of the approach of the courts to cases of fraudulent non-disclosure involving policies of life insurance. It is clear that, in situations where the insurer can establish that it would not have entered into the insurance contract had there been disclosure, it will have the right to avoid the policy on these grounds.

The case also provides useful guidance on the evidence that can be adduced to establish that a policy would not have been written and the weight the court will attach to such. The decisions also provides some guidance on TPD policies, and the requirements of meeting the 'totally and permanently disabled' definition.

Footnotes
  1. Kenan Berk v Westpac Securities Administration Ltd & Anor [2010] NSWSC 28.

For further information, please contact:

Return to top

Share with

What are these?

 

 

Recent Insurance & Reinsurance publications