Case Note: ASIC v Zurich Australia Limited (No 2) [2023] FCA 1641

ASIC v Zurich Australia Limited (No 2) [2023] FCA 1641


This Federal Court proceeding, brought by ASIC against an insurer, alleged that the insurer had breached its statutory duty of utmost good faith in avoiding an income protection insurance policy on the grounds of fraudulent disclosure or misrepresentation. On 21 December 2023, Jackman J determined that the Insurer had not breached its duty of utmost good faith. It is the first decision since the civil pecuniary penalty order was introduced to the Insurance Contracts Act 1984.

Factual background

The insured had taken out an income protection policy with OnePath with the assistance of a financial advisor. In completing the health questionnaire, the insured did not disclose the full extent of her mental health history, including that she had been admitted to hospital on six occasions for depression, suicidal ideation and suicide attempts.  The insured subsequently claimed benefits due to a shoulder injury (which was accepted, subject to ongoing assessment).  While investigating the shoulder claim, the insurer’s investigations uncovered the details of the hospital admissions.

The insurer obtained a retrospective underwriting opinion that had the hospital admissions been disclosed, the cover would not have been underwritten. Subsequently, a detailed procedural fairness letter was sent to the insured. The insured replied that her financial adviser had helped her answer the questions on the application form and told her she did not need to ‘go back beyond five years’ when disclosing her medical history.

The insurer then avoided the policy from inception on the grounds of fraudulent non-disclosure/misrepresentation (relying on s 29(2) of the Insurance Contracts Act).


ASIC accepted that the insurer had formed a reasonable conclusion about the insured’s disclosure and limited its case to the manner or process that the insurer adopted in reaching its decision to avoid the policy.

ASIC argued that a breach had occurred for the following reasons:

1.     The insurer avoided the policy without first enquiring with the financial adviser who had assisted the insured in applying for the policy regarding the explanation for the non-disclosure.

2.     The insurer decided to avoid the policy without adequately notifying the insured of its intention to avoid it based on fraud.

3.     The insurer failed to inform the insured of her right to dispute or appeal its decision to avoid the policy.

Justice Jackman’s reasoning

In considering the duty’s content, Jackman J referred to High Court decisions in CGU Insurance Limited v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 235 CLR 1 and Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 [2022] HCA 38; (2022) 97 ALJR 1. Most notably, his Honour cited the majority’s judgment in Delor Vue to the effect that there is no free-standing obligation upon an insurer, independent of its contractual rights, powers and obligations, to act in a manner which is decent and fair; rather the obligation to act decently and with fairness is a condition on how existing rights, powers and duties are exercised or performed.

ASIC was unsuccessful on all three grounds. His Honour held:

1.     The insured’s explanation was implausible as the medical questions in the application form had been unambiguous. Therefore, the duty of utmost good faith did not require the insurer to obtain further information.

2.     The duty of utmost good faith did not require an insurer to expressly state that it thought an insured was dishonest. Instead, it was sufficient that the insurer had discussed avoidance remedies in general terms and provide the insured with an opportunity to explain her failure to disclose and/or accurately represent her medical history in the application.

3.     The duty of utmost good faith had not been breached as the insurer’s failure to include the insured’s right of review in the avoidance letter was likely an administrative error.


The case demonstrates that following the High Court’s recent decision of Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 [2022] HCA 38, an insurer’s duty of utmost good faith continues to be a work in progress for insurance law in Australia.

His Honour highlighted two areas that demonstrated the difficulty that the plurality’s statements in Delor Vue presented to develop further the duty of utmost good faith.

The first, raised by Jackman J but not determined, is how the requirement set down in Delor Vue that the duty of utmost good faith must be coherent with the operation of legal doctrines that were well established at the time of the Insurance Contracts Act can be reconciled with the principle that a contracting party can justify its avoidance of a contract at trial on grounds not asserted or even known at the time of termination.  

The second was the status of industry codes of practice and what role such documents may play in identifying an insurer’s duty of utmost good faith.  In this case, ASIC sought to argue that a breach of the Life Insurance Code of Practice in failing to inform the insured of her rights and dispute resolution process was consistent with a breach of the duty of utmost good faith. However, Jackman J held that as Delor Vue requires the duty of utmost good faith to be a condition on existing rights, powers and duties, and the Code did not give rise to any legal rights between the parties; a breach of the Code could not be a breach of the duty of utmost good faith.

Despite its loss in the Federal Court, ASIC remains committed to enforcement proceedings against insurers. In its recent 2024 enforcement priorities, ASIC included insurance claims handling.  It will be interesting to see how ASIC regroups and continues its pursuit of poor claims handling.

The Insurance and Professional Negligence section committee is grateful to Hugo Miric for his contributions towards this case note.

Print Friendly, PDF & Email

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *