A recent case provides some excellent insights into how a Court regards some replacement advice practices.

The case, Commonwealth Financial Planning Ltd v Couper [2013] NSWCA 444, was an appeal by Commonwealth Financial Planning Ltd seeking a retrial of an earlier case brought against it. It was decided in the New South Wales Court of Appeal.

Noel Stevens made a claim against CFP after being diagnosed with pancreatic cancer and having a claim under his life and trauma policy denied by CommInsure. The denial of the claim was on the basis that Mr Stevens had not disclosed various things in his application – including the amount that he drank. Section 29(3) of the Insurance Contracts Act 1984 allows an insurer to avoid a policy for non-fraudulent non-disclosure for up to three years after it is entered into if the insurer can show it would not have entered into the contract had the disclosures been made. Mr Stevens had changed from a Westpac policy on advice from CFP adviser Andrew Galloway. Mr Stevens' Westpac policy had been on foot for longer than three years when Mr Galloway's advice was given.

The original Court found that CFP had engaged in misleading and deceptive conduct. The appeal argued that there was not sufficient evidence to support a finding of misleading and deceptive conduct on the part of CFP.

The Court of Appeal found that there was sufficient evidence to support a finding of misleading and deceptive conduct, on a number of grounds.

  1. The advice given by Mr Galloway wrongly supposed that a comparison could be made between the CommInsure and Westpac policies when it was not yet known whether CommInsure would insure Mr Stevens and on what terms.
  2. CFP did not allow Mr Galloway to recommend that Mr Stevens retain his existing Westpac policy as the Westpac policy was not on CFP's approved product list. Therefore it was misleading for the advice to say that all considerations pointed to cancelling the Westpac policy and taking out the CommInsure one.
  3. Such comparison as existed between the policies in the advice given was incomplete. For example, the SoA omitted a consideration of level premiums under the CommInsure policy and considered only stepped premiums, confining its consideration to the first year of the policy rather than the longer term.
  4. The advice failed to disclose the effect of section 29(3) of the Insurance Contracts Act 1984. The adviser was unaware of the existence and effect of this provision and the SoA, prepared from a template by a paraplanning team, did not refer to it either.

The finding of misleading and deceptive conduct entitled Mr Stevens (or, in this case, his estate, as he had died by the time of the appeal) to compensation from CFP.

This case raises a number of issues and talking points.

One obvious practical take-out is to consider how your advisers are trained on the effect of section 29(3) of the Insurance Contracts Act 1984 and how your SoA templates reflect the existence of this provision. Your advisers should consider the fact that this three year period is "re-set" when they recommend a new policy to a client, meaning that any inadvertent non-disclosure by their client could lead to denial of a claim anytime in the next three years. Your advisers also need to make clear to the client the existence and effect of this section when recommending a new policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.