The Federal Court lawsuit against OnePath, filed by the Australian Securities and Investments Commission on Wednesday, is the first to seek financial penalties over a firm's alleged failure to act with "utmost good faith" when handling a claim.
"This proceeding raises important issues about what an insurer's duty of utmost good faith requires of that insurer prior to taking the significant step of determining to avoid an insurance policy on the grounds of fraudulent non-disclosure," ASIC wrote in documents filed with the court.
In 2016, a OnePath customer took out an income protection policy through an ANZ financial advisor. At the time, she disclosed prior mental health conditions.
Two years later, she made a claim following a shoulder injury.
After an investigation, OnePath uncovered further information about hospitalisation regarding the mental condition.
The firm decided not to pay out, claiming the customer had acted fraudulently by failing to disclose this hospitalisation.
ASIC claimed OnePath failed to clarify that the customer's conduct was thought to be fraudulent, failed to fully investigate her explanation for the non-disclosure, and did not inform her about her right to appeal via OnePath's internal resolutions process or the Australian Financial Complaints Authority.
"If an insurer is concerned a customer has engaged in fraudulent non-disclosure, they must make their concerns explicit, give the customer the opportunity to respond and make proper inquiries into any explanation given by the customer before concluding that fraud has occurred," ASIC deputy chair Sarah Court said.
"Insurers deal with their consumers at their most vulnerable. This makes it crucially important that they ensure their customers understand their rights, including their rights of appeal if an insurance claim is declined."
Zurich Financial Services Australia, which acquired OnePath in May 2019, acknowledged the lawsuit in a statement.
"Zurich is considering the matters raised by ASIC in its concise statement and is committed to working constructively through the court process," a spokesperson said.
"Zurich will not be providing further comment given the matter is now before the court."
In July 2021, OnePath was hit with a $35 million remediation order after its poor phone sales practices caused extensive customer harm.
ASIC has also launched civil penalty proceedings against superannuation trustee OnePath Custodians for allegedly charging customers fees without providing any service.
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