The following Victorian Supreme Court decision identifies the importance of comprehensive advice by life insurance advisors to their clients and suggests somewhat of an onus on those advisors to follow up on any suggestion of changes in their clients’ medical conditions. This is notwithstanding the onus on insureds to provide continuous disclosure between application and issuance of policy.
As at March 2012, Richard Swansson, a middle aged architect, had held a life insurance policy with AXA insuring him against death or a diagnosis of terminal illness. In February 2012, AXA sent Mr Swansson its annual renewal notice requiring payment of the annual premium. Displeased with an $800 premium increase, Mr Swansson made arrangements to meet with his insurance advisor, Russell Harrison, sole director of Harrisons Financial Services (Aus) (“Harrisons”), both authorised representatives of Synchronised Business Services and the three parties comprising the defendants in the matter on 7 March 2012.
On 5 March 2012, Mr Swansson attended at his general practitioner’s surgery complaining of a sore stomach. He was diagnosed with giardia and prescribed medication.
Mr Swansson attended Mr Harrison’s office on 7 March 2012 as arranged. During this meeting, Mr Swansson provided Mr Harrison with financial information and received a pre-prepared written statement of advice from Mr Harrison that recommended a substitute insurance policy with AIA. A discussion also ensured regarding payment of premiums and Mr Harrison prepared an application for the recommended insurance policy with Mr Swansson’s instructions provided at the time, including instructions that led Mr Harrison to note on the application form that the giardia had resolved. Mr Swansson paid the annual premium for the policy by credit card, which payment was noted on the application form. Mr Swansson signed that application as being true and correct and also signed an undated letter authorising the cancellation of the AXA policy and gave it to Mr Harrison.
On 8 March 2012, Mr Swansson returned to his doctor complaining of a “stabby” sore stomach. On 9 March 2012, an ultrasound was performed and Mr Swansson was diagnosed with pancreatitis and referred to a gastroenterologist on 13 March 2012. Mild pancreatitis was confirmed. Mr Swansson was ordered to abstain from alcohol for a period and referred for a further scan. That scan took place on 22 March 2012.
On 23 March 2012, AIA accepted the risk and issued Mr Swansson with a new policy. In late March, Mr Swansson was diagnosed with pancreatic divisum with mild residual inflammation.
The AXA policy was cancelled on 28 March 2013.
On 3 May 2012, Mr Swansson was diagnosed with pancreatic cancer. Mr Swansson informed Mr Harrison on 4 May 2012. On 17 July 2013, Mr Swansson’s diagnosis was changed to terminal.
Harrisons lodged a claim on the AIA policy on Mr Swansson’s behalf on 30 July 2013. It was rejected on 28 October 2013, on grounds that Mr Swansson misrepresented the true nature of his visit to his GP on 5 March 2012, and failed to comply with his ongoing duty of disclosure by not advising AIA of his ongoing symptoms, consultations and investigations before the policy commenced. AIA maintained this determination.
Communications by Mr Swansson with Harrisons post 7 March 2012 meeting
Evidence showed that there was at least one telephone discussion between Mr Swansson and Harrisons between 7 March 2012 and 23 March 2012, during which a staff member of Harrisons telephoned Mr Swansson and asked for details of his usual alcohol consumption, missed by Mr Harrison during the meeting on 7 March 2012. Mr Swansson provided the information. Sometime after 19 March 2012, Mr Swansson called Harrisons regarding a renewal premium reminder from AXA. Mr Harrison did not concede this communication.
The next communication was the discussion on 4 May 2013.
At no time did Mr Swansson provide Harrisons with any additional details about the further diagnoses after 7 March 2012.
Mr Swansson’s case and the defendants’ response
Mr Swansson alternatively alleged that the defendants negligently failed to exercise the skill and care reasonably to be expected of an insurance advisor (or broker) and that the defendants engaged in misleading and deceptive conduct in contravention of section 1041H of the Corporations Act 2001 (Cth) and section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), causing him loss of cover under the AXA policy. Specifically, Mr Swansson alleged that the defendants:
- failed to explain the continuing nature of the duty to disclose material facts;
- trivialised the significance of Mr Swansson’s stomach complaint to justify using the word ‘resolved’ in the application;
- failed to explain the immunity from loss of the policy through innocent misrepresentation guaranteed by section 29(3) of the Insurance Contracts Act 1984 (Cth); and
- failed to check with Mr Swansson about his medical condition before finally cancelling the AXA policy.
It was accepted that had Mr Swansson maintained the AXA policy, he would have been paid the $1,477,454.79 under that policy.
In response, the defendants asserted that Mr Swansson was determined to get out of the AXA policy because he was angry with the increase in premium and that he had agreed that ‘resolved’ was an appropriate description of his stomach complaint as at 7 March 2013. He also allegedly told Mr Harrison that he felt ‘fine’. As an alternative, the defendants alleged that Mr Swansson’s failure to disclose to them the further medical tests or diagnoses after 7 March 2012 amounted to contributory negligence or conduct that justified a reduction on the any damages awarded him.
Macaulay J’s findings
Mr Swansson’s understanding of the duty of disclosure and consequences of failing to comply with that duty
Amongst other reasons, as an intelligent man who had a history of insurance applications, Macaulay J found it probable that Mr Swansson had had the duty of disclosure explained to him in the past, having signed numerous declarations that he had read and understood the continuing duty.
Macaulay J also accepted the importance Mr Harrison said in evidence that he placed on advising on the duty of disclosure, as an experienced insurance advisor prompted by the application form itself, would. He also accepted evidence provided by Harrison of a bad experience he had with an associated insurance advisor who did not place such importance on doing so. It was also found that Mr Harrison explained to Mr Swansson the consequences of failing to disclose, including that within 3 years of the policy, the insurer could avoid a claim for non-disclosure or misrepresentation that was not fraudulent, consistent with section 29(3) of the Insurance Contracts Act 1984 (Cth). These findings were open to Macaulay J after disposing of allegations of sloppy or slack business practices on the part of Mr Harrison.
Moreover, Macaulay J did not believe, on the evidence, that Mr Swansson thought he had done all he needed to do for the purposes of obtaining cover as at 7 March 2013. Nor did Macaulay J believe that Mr Swansson thought that his medical condition, as it was on 7 March 2012, was unimportant to AIA and, after 7 March, remained essentially the same. Macaulay J referred to the unlikelihood that Mr Swansson did not understand the nature of the application for insurance prepared on 7 March 2013, particularly after Mr Harrison had advised Mr Swansson that his credit card payment would not be processed until the policy was issued.
Accordingly, not only did Macaulay J find that Mr Harrison informed Mr Swansson of his duty of continuing disclosure, but he also understood that he was obliged to make disclosure beyond the 7 March 2012 meeting.
Did Mr Harrison trivialise Mr Swansson’s stomach complaint to justify using the word ‘resolved’ in the application?
Macaulay J also accepted, despite Mr Harrison’s difficulty in recalling the precise discussions during the 7 March 2012 meeting, that words were used by Mr Swansson that caused him to believe that Mr Swansson’s stomach complaints had resolved by that date, and that he would have clarified with Mr Swansson that ‘resolved’ was an appropriate word to use.
Was it negligent not to make any further enquiry about Mr Swansson’s condition before cancelling the AXA policy?
Macaulay J formed the view that Mr Harrison did fail to exercise the standard of care required of a reasonable and prudent advisor for failing to make any further enquiry about Mr Swansson’s condition, and, therefore found that the defendants were negligent in this regard. Macaulay J made this finding despite accepting that Mr Harrison did advise Mr Swansson to defer applying for the AIA policy due to his medical condition, but that Mr Swansson wished to proceed. Macaulay J was particularly reliant on the following:
- Mr Harrison knew of the special value of the AXA policy, compared to the AIA policy, in that it could no longer be avoided for innocent non-disclosure;
- Mr Harrison was aware that Mr Swansson had been to a doctor only two days before the interview on 7 March 2012, a very short space of time in which to be sure of his recovery;
- Mr Harrison himself expressed concern that the kind of condition from which Mr Swansson suffered was one that could take some time to clear, mentioning his own wife’s experience;
- by the time he was poised to implement the cancellation of the policy, Mr Harrison was aware that three weeks had elapsed since he last heard from Mr Swansson meaning that the last information he had about his client’s stomach complaint was by then out of date; and
- it was a relatively easy thing to make an inquiry of Mr Swansson about his current medical status he merely had to make a telephone call.
Had Mr Harrison made the inquiry, it was highly likely, opined Macaulay J, that he would have learned of Mr Swansson’s diagnosis of pancreatitis and that further investigations were required. Macaulay J found that Mr Harrison would not have cancelled the AXA policy in light of the operation of section 29(3) of the Insurance Contracts Act 1984 (Cth), and Mr Swansson likely would have made claim on that policy once his diagnosis had become terminal and would have been paid the insured sum.
Was Mr Swansson guilty of contributory negligence by failing to exercise reasonable care for his own interests?
Macaulay J found that Mr Swansson failed to exercise the care a reasonable person in his position by not telling Mr Harrison’s office that his stomach complaint had not resolved, that he had been diagnosed with pancreatitis, and that further investigations were pending. Particularly, Macaulay J noted that a reasonable person in Mr Swansson’s position, who knew that his insurance application represented that his condition had resolved would have thought it prudent to update his advisor of the developments in his medical condition. Even if only to check that it did not matter that it had changed. Mr Swansson was even more careless in this regard, because of Macaulay J’s findings that Mr Swansson was aware of his ongoing duty of disclosure, he gave Mr Harrison a signed authority to cancel the AXA policy, and he did have the opportunity to inform Mr Harrison of the updated medical condition when he was telephoned by Harrisons about his alcohol consumption, and later when he contacted Harrisons to ask about payment of the AXA premium.
Mr Harrison would not have sent the letter cancelling the AXA policy had he been informed by Mr Swansson of his updated medical status. Had this been the case, the policy would have been in force at the time of Mr Swansson’s terminal diagnosis and he would have been paid the insured sum.
Mr Swansson’s negligence reduced his entitlement to damages by 50%.