Federal Court Decision on Utmost Good Faith under s.14a of the Insurance Contracts Act.
The Federal Court of Australia delivered a judgement last week for one of the first cases brought by ASIC under s.14a of the Insurance Contracts Act 1984, (ICA).
In recent years, a body of cases have been accumulating in respect of s.13 of the Act, which requires the parties to an insurance policy to act with utmost good faith. For some time, this provision has been seen as a “toothless tiger”, appearing in submissions to the court, but rarely having success on its own merits. It has been seen more as an informing principle rather than an actionable provision of the Act.
ASIC v TAL Life Limited (No 2) 2021 FCA 193 is one of the first instances where ASIC has commenced proceedings against an insurer for a breach of its duty to act with utmost good faith. I have been following the decision for some time.
A copy of the court pleadings is attached below.
A copy of the judgement is also attached.
Although the facts of the case (to do with an income protection policy) are not which LMI encounters often, the conclusion is important. Allsop CJ found that TAL breached its duty of utmost good faith by:
- Failing in procedural fairness in avoiding a policy on the basis of non-disclosure without first allowing the insured to challenge that view (Allsop CJ noted that it is not relevant whether there was non-disclosure or not, the breach occurred when the insurer went about covertly investigating the insured’s medical history);
- Alleging that the insured was in breach of good faith on the basis of non-disclosure; and
- Threatening to recover payments already made to the insured was harsh, unfair, and lacked common decency.
The court cautioned that these are not principles intended to be applied generally, but on a case by case basis. Nonetheless, it is interesting to see that ASIC is exercising its powers to enforce s.13, and that insurers are being held to account for their conduct where commercial decency is found lacking.
I thank Jack Chen, Senior Associate at LMI Legal for his assistance in the preparation of this post.
The doctrine of Good Faith is and should always be the foundation of the relationship between Insured Broker and Underwrite. For too many years as an industry we have lost the meaning of the ‘spirit and intention’ of the policy i.e. to pay claims. How can this ‘Good Faith’ flourish when we as an industry at times avoid the spirit and intention of the policy?
I could not agree more Evan. Some insurers appear to have forgotten the concept. I have household claims that are year old which could be fixed if insurers were serious. 1 is heading to 12 years old. In commercial we are seeing if one part of the claim is in dispute the insurer withholds all payments to force the insured into taking a lower settlement. One case is now 30 months old with a fire in a neighbours building with not one cent paid to the insured. Roof leaking, smoke and soot everywhere.
I predict this is the first case of many.
Regards
Allan