The Duty to take Reasonable Care Not to Make a Misrepresentation

If you are applying for insurance, there’s a legal duty to take reasonable care not to make any misrepresentation before your policy contract is entered into. When you apply for life insurance, insurer’s will typically conduct a process called Underwriting. Generally, this process helps them decide whether they can provide you with cover. During this process, you have the duty to take reasonable care to not make a misrepresentation with the information you provide to them.

Published September 23, 2021

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What is the duty to take reasonable care?

Generally, when you apply for life insurance, your insurer will ask you several questions. These questions will typically be clear and specific. They will be about your health and medical history, your occupation, income, lifestyle, pastimes, and any other insurance policies you may hold.

The answers you provide in response to their questions are very important because your insurer will use them to decide if they can provide you with cover and, if they do, what the cover terms are and the premium they will charge. You, as the consumer, are required to take reasonable care not to make a misrepresentation.

Consumers may make a misrepresentation if, for example, they provide a false answer, only partially true, or that does not fairly reflect the truth. This means when answering the insurer’s questions; you are obliged to respond fully, honestly and accurately.

As the consumer, it means that you are responsible for all answers given, even if someone assists you with your application. It’s important to remember that insurers may investigate the answers you provided in your application in the event of a claim.

The duty to take reasonable care not to make a misrepresentation applies any time they answer the insurer’s questions as part of an initial insurance application, an application to extend or make changes to existing insurance, or an application to reinstate insurance.

The risks of replacing your life insurance policy

If you are looking to replace an existing policy, you need to be aware that you reset your Disclosure date by applying for a new policy. This means that the Insurer can void or amend your policy if they find that you failed to fully or accurately disclose your health and medical history, your occupation, income, lifestyle, pastimes, and any other insurance policies you may hold.

So, replacing an existing policy can leave you in a worse position than simply maintaining or amending your existing policy. So, if you do replace an existing policy, take extra care to ensure that you’re fully complying with your Duty to take Reasonable Care Not to Make a Misrepresentation.

What happens if you don’t meet the duty?

Not meeting the duty to take reasonable care not to make a misrepresentation could lead to serious consequences for you. If the insurer is able to prove that you have failed to comply with your duty of reasonable care they have remedies available to put the insurer in a position they would have been if you had fully complied with your duty of reasonable care not to make a misrepresentation.

Remedies for non-disclosure

Remedies available to insurers are set out in the Insurance Contracts Act 1984 (Cth). Insurer’s typically have these remedies in place to put them in the position they would have been in if you had met your duty of reasonable care.

Some consequences for not meeting the duty to take reasonable care include:

When will these remedies be implemented?

Suppose your insurer reasonably believes that you have breached your duty to take reasonable care not to make a misrepresentation. In that case, your insurer will let you know their reasons, outline the information on which they’ve relied on and provide you with an opportunity to explain.

If they should determine that there has been a breach of the duty, they will consider all relevant circumstances. Generally, their response will depend on the specific circumstances of the breach, including what they would have done had a misrepresentation not been made during the application process and whether or not the misrepresentation was fraudulently made. At this point, the insurer may decide to implement certain remedies.

Questions to expect from your insurer

Generally, your insurer will ask you several questions about your personal circumstances. These may include questions about your health and medical history, occupation, income, lifestyle, pastimes, and current and past insurance. The answers which you provide to these questions will determine your insurer’s decision.

Tips for answering Insurer’s questions

If you’re applying for insurance cover, it’s generally a good idea to take care to accurately and honestly answer all of the questions you’re asked as part of your application. If you don’t, you may not be able to rely on your insurance when you need it the most. If you’re unsure about what’s being asked, or how to answer, it’s typically best to seek advice or speak to your insurer directly.

When answering their questions, please:

Further information your insurer may require

If the application is accepted the policy will be seen as a ‘consumer insurance contract’. Before your cover starts, the insurer may ask about any changes that may have occurred since you lodged your application. By doing this, they are trying to determine whether your circumstances have changed and if you would now answer their questions differently. As any changes might require further assessment or investigation, it could save time (and limit both parties’ risks) if you inform them of any changes as soon as they occur.

Once your policy is in place and cover started and you suspect that you may not have met your duty, it’s generally best to contact your broker or insurer as soon as possible and send in writing the changes to the original application form / Disclosures that you need made to allow the insurer to reassess your additional disclosures.

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When did it change to Duty to take Reasonable Care

The duty to take reasonable care not to make a misrepresentation was first introduced in the Financial Sector Reform (Hayne Royal Commission Response) Act 2020. According to the act insurer’s would need to ensure that their contracts are updated by 5 October 2021 to include the duty of reasonable care. However, some insurers may already have updated their policies to include the duty to take reasonable care not to make a misrepresentation. If you’re uncertain about the duty, it’s best to contact your insurer or life insurance broker.

Duty of Disclosure

If you purchased your insurance before the new duty to take reasonable care was put into place, your policy may still fall under the duty of disclosure. If you’re uncertain which duty your policy falls under, it’s typically a good idea to check with your broker or insurer.

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