This case concerned a negligence claim against a financial adviser who advised his client to switch to a new life insurance policy that was subsequently avoided for non-disclosure. A couple of days before receiving the advice, the client had visited his GP with a stomach complaint, was diagnosed with an infection and prescribed antibiotics. The new policy application referred to the stomach complaint but represented that the matter was ‘resolved’. Following the submission of the application, the client’s symptoms worsened and he attended further medical consultations, but did not notify the adviser or insurer of these developments. The new policy was issued, and the adviser cancelled the old policy. A couple of months later, the client was diagnosed with terminal pancreatic cancer. The new insurer refused to pay out under the policy on the basis that the client had not complied with his duty of disclosure under Insurance Contracts Act 1984 (Cth) s 29. The client’s entry into the new policy had re-exposed him to the risk of his policy being avoided for innocent non-disclosure, a risk that had long since passed in relation to the old policy.
The court held that the client and adviser were jointly negligent for failing to disclose information about the previously identified stomach condition or the medical treatment received. A reasonably prudent adviser would have checked again with the client before cancelling the old policy, while the client had been advised of the ongoing duty of disclosure and ought to have informed his adviser of the developments in his medical condition. This case highlights the importance of making final enquiries of a client prior to cancellation of a policy, and ensuring that all discussions with clients and prospective clients are documented.
You can access the reasons for judgment here.