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  • Bethany Bujaroski

The Role of Trust in Insurance Contracts

This case demonstrates the significance of trust in a contractual relationship between a client and an insurer. Our office recognises that an insurance contract is fundamentally built on trust, thus when this trust is broken, we do all things necessary to restore faith in the client and re-build this relationship.

The actions, or more accurately, the inaction, of the insurer in this case resulted in a complete loss of trust in their relationship with the client. Not only this, but the client also lost trust in the insurance industry as a whole. Our office recognised the impact this situation had on the client, thus we presented an extensive analysis of the insurer’s failure to comply with their duties and obligations under the governing statutory authorities, codes of practice, and community expectations. This provided justification for the remedy we sought for the client.


This client took out a Life Insurance policy in which she paid a level premium that she would have expected to keep until age 65. The previous servicing adviser, who has since been banned, applied for her insurance coverage with a date of birth incorrectly set as ten years younger than she is. This had a substantial impact on the premiums the client was paying, as they were significantly lower than what they should have been. This needed to be rectified urgently.

When we discovered this error, our office notified AIA immediately and advised them of their discretionary power under s29 (4) of the Insurance Contracts Act 1984 to alter the contract to allow Ms Oppio to continue to hold her policy. However, the insurer never followed through with our multiple requests and thus the issue was never rectified.

Further, when the client contacted the insurer herself, they incorrectly advised her that our office had never sought to correct the mistake. They also incorrectly advised her that the only possible remedy for this issue would be for her to repay the difference in premiums she ‘owed’. Our office calculated that the premiums she should have paid with the correct birthdate were 90.7% higher than what she was paying (close to double). This means that she would have had to pay the insurer close to the entire accumulated amount of the premiums she paid over the course of six years, outright. Demanding that a client pay back this extensive amount is incongruent with community standards and expectations, as well as the relevant governing statutes. The client subsequently cancelled her policies with this insurer.


In this case, the insurer was in breach of multiple governing statutes, as well as the community expectations of the standard of service from an insurance provider. Not only did the insurer fail to exercise their duty to alter the contract, they failed the client by not having in place adequate arrangements for the management of issues such as these. The insurer claimed that if any incorrect information was provided, it must be brought to their attention in order to rectify it. Once we did bring this to their attention, no reasonable steps were taken to correct it as they stated in the policy schedule disclosure statement.


This conduct is a clear breach of the utmost good faith requirement for insurers under s 13 of the Insurance Contracts Act. Further, AIA have breached s 961B Corporations Act by clearly not merely considering the interests of the client, nevertheless failing to uphold their duty to act in the best interests of the client. They also breached s 912 of the same act by failing to do all things necessary to ensure that financial services are provided efficiently, honestly and fairly. This is demonstrated by not exercising their duty to alter the contract, by dishonestly advising the client that this was the only viable option and that our office did not attempt to fix the issue.


Insurance providers are bound by the Financial Services Council Code of Practice, which stipulates that they ‘will be honest, fair, respectful, transparent, [and] timely’. It cannot be said that refraining from rectifying this issue and demanding the client to pay for this mistake is constituent with this.


The insurer also breached ASIC’s minimum competence expectations as it is not feasible that the insurer had adequate competence procedures in place when these extensive delays occurred. Then, we further argued that the insurer’s actions represent a disregard for the 2019 Royal Commission and subsequent fairness imperative, central tenants of the life insurance industry.


We brought forward an extensive analysis of the above statutes, which justified the proposed remedy we sought for our client. This case highlights the importance of trust and fairness which should be the principal values underpinning the insurance industry. Insurers should thus provide their financial services in accordance with these tenets. Our office recognises this, which is why we argued the client should receive a total refund of premiums as well as financial compensation as a result of lack of proper service she received from the insurer.

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