Question 2

Mr Bob Smithson, a pastry chef, aged 45, insured his own life for $1 million two years ago with Wombat Insurance Ltd. Mr Smithson plays golf on weekends and works out in his home gym several days each week. He believes he has a good diet, although he admits to having a sweet tooth. His mother, Catherine, often worries about his love of sweet food as she developed Type II diabetes, at a relatively young age. Mr Smithsons father died at age 42 of a heart attack. Mr Smithson had a blood test recently when he changed jobs and it was discovered that he was pre-diabetic. The doctor recommended that he reduce his consumption of sweet foods, but Mr Smithsons job requires him to constantly taste food so he does not see this as an option. During a round of golf in May 2023, Mr Smithson suffered a massive heart attack and died before the paramedics arrived. His wife, Melinda, wishes to make a claim on her husbands policy. Melinda has been a housewife for the past 20 years and does not have savings or superannuation of her own. She assumed that the insurer would pay the claim quickly, but they have written to her denying liability. The application form required the insured to answer yes or no to relevant health history. Bob failed to indicate his parents history of diabetes (on his mothers side) and heart attack (on his fathers side). Pertinent parts of the insurance application form (Document 1) and the insurance policy (Document 2) are extracted below. Note that both documents contain other clauses, but are not extracted for the purposes of this activity.

Part A

Explain whether Wombat Insurance Ltd can deny the claim on the ground of nondisclosure. Using IRAC Format [10 marks]

Part B

Following the denial of the insurance claim, Mrs Smithson seeks your advice on what steps she can take to have their decision reviewed. In your advice to Mr Smithson, explain AFCAs role in handling insurance reviews and complaints. Using short essay format [10 marks]