Misleading and unfair were not the same thing, the Federal Court told ASIC
The Federal Court dismissed an Australian Securities and Investments Commission appeal, confirming that a contract term liable to mislead consumers was not automatically unfair.
In Australian Securities and Investments Commission v H C F Life Insurance Company Pty Limited [2026] FCAFC 81, the court rejected the regulator's challenge to a ruling that HCF Life's pre-existing condition exclusions, though liable to mislead, did not amount to unfair contract terms under s 12BG of the ASIC Act.
HCF Life offers life insurance products that exclude cover for pre-existing conditions. From August 2019, the insurer adopted a definition that excluded cover where a medical practitioner formed the opinion that signs or symptoms existed before a policy began. ASIC alleged the terms misled consumers because they omitted any reference to s 47 of the Insurance Contracts Act 1984 (Cth), which limits when an insurer can rely on such exclusions.
The primary judge found the terms liable to mislead, contravening s 12DF of the ASIC Act, but held they were not unfair. ASIC appealed only the unfairness finding.
ASIC first sought leave to withdraw a concession it made at trial – that the court should weigh the ameliorative effect of s 47 when assessing imbalance. The Federal Court refused. ASIC had built its entire case on s 47 forming part of the unfairness analysis, so withdrawing that position would let ASIC run a different case on appeal and prejudice the insurer, which had led detailed evidence on that shared assumption.
On the alternative ground, ASIC argued that the terms' capacity to mislead created a significant imbalance in the parties' rights and put consumers at a practical disadvantage. The court disagreed. ASIC bore the onus and led little evidence that consumers would in fact abandon valid claims, the court said. HCF Life's actuary gave evidence that policyholders tended to claim regardless of whether they understood the exclusions.
The court also rejected ASIC's transparency argument. A lack of transparency, the court explained, did not form a standalone element of unfairness; it only informed the s 12BG(1) criteria. Even if the terms lacked transparency, that would not change the conclusion on imbalance.
The court further endorsed the primary judge's use of a proportionality analysis when deciding whether the terms protected HCF Life's legitimate interests. The terms aimed to mitigate anti-selection risk and support guaranteed acceptance products. Although equally practicable alternatives existed, none would have imposed a significantly lesser burden on consumers.
In a separate concurrence, one member of the court raised concern about a developing trend of parties, especially regulators, treating appeals as fresh proceedings rather than as a means to correct error.
The court dismissed the appeal and ordered ASIC to pay HCF Life's costs.
