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Issue 21 - April 2015

Case Studies


This is a collection of case studies that have appeared elsewhere in this edition of The Circular. It includes the case studies from the two FOS Approach documents in this edition – covering section 47 of the Insurance Contracts Act, and Statements of Advice. You can read more about our approach to these and other issues by visiting More case studies are available on our website at

Section 47
Case 1: Chronic fatigue syndrome (CFS)
The Applicant arranged a travel policy on 20 August 2012. On 10 September 2012, the Applicant was diagnosed with CFS and subsequently hospitalised in November 2012.

The Applicant cancelled the trip and lodged a claim for the costs incurred.

The insurer denied the claim on the basis that the CFS was a pre-existing medical condition.

FOS considered that section 47 operated to prevent the FSP from relying on the policy exclusion on the following basis:

  • The Applicant only first consulted a GP on 28 August 2012.
  • While the Applicant suffered from symptoms, such as lethargy, for 8 months before this, she was attending work and playing regular competitive sport. She also engaged in various other activities.
  • Her symptoms could reasonably be expected to have been associated with her extensive activities, rather than a particular medical condition.

Based on the above FOS, did not accept that the Applicant was aware of, or a reasonable person in her circumstances could have been expected to have been aware of, the CFS before the policy was issued.

Case 2: Recurring sickness
A life insurance policy was issued to the Applicant and her partner on 13 December 2006. On 11 February 2012, the Applicant lodged a claim as a result of her partner’s death a month before.

The insurer denied the claim on the basis the death arose due to a pre-existing condition, namely a grade 3 anaplastic oligodendroglioma. FOS was satisfied the illness that resulted in the husband’s death was related to that pre-existing condition.

The Applicant argued neither she nor her husband were aware of the condition. This is because they did not receive the diagnosis until 22 December 2006, being over a week after the policy commenced.

However, the following had been undertaken by the Applicant’s husband prior to the contract being entered into:

  • He visited his general practitioner (GP) on 4 December 2006 presenting with symptoms including an inability to complete sentences, disorientation, and lack of motivation and memory lapses.
  • He undertook a CT scan later that day on the GP’s instruction – the result was the identification of a 6cm lesion.
  • On 12 December 2006, he had the lesion surgically removed.

In context of the timing, the symptoms suffered and the degree of medical consultations and procedures undertaken, FOS concluded that a reasonable person in the husband’s circumstances would have been aware of the sickness, even though he had yet to receive the precise diagnosis.

Therefore, section 47 did not assist the Applicant.

Statements of Advice (SOA)
The Applicant was a very elderly war widow and had exceeded the life expectancy of an Australian female. Her financial situation was uncomplicated. She received more than enough income from her pension and from a small annuity to meet her needs.

The Applicant received a significant legacy from her sister’s estate. This was the first time she had received a large sum of money. She had previously obtained financial advice about her annuity from a financial adviser, but she was otherwise inexperienced in financial matters.

The Applicant sought financial advice from her regular adviser. She told the adviser that she wanted to top up her annuity with $100,000 and sought her advice about how to invest the balance of the inheritance.

During her discussions with her adviser, the Applicant said she wanted to invest a small amount in her granddaughter’s name, but later she changed her mind because she was concerned about how other family members would view the investment when she passed away and they were dealing with her estate.

The adviser recommended that the Applicant invest the balance of the inheritance in a managed growth fund. The SOA prepared by the adviser stated the investment in the managed growth fund was “not capital guaranteed”, “the balance may fluctuate daily due to changes in unit prices” and there was a risk of capital loss if the Applicant withdrew from the investment early.

The Applicant accepted the advice and made the recommended investment. The investment performed badly and suffered significant losses. The Applicant lodged a dispute with FOS, claiming she did not understand the advice provided to her and the managed growth fund was not an appropriate investment in her circumstances.

We noted that an SOA is a disclosure document that is intended to help a retail client understand advice and decide whether to rely on it. Client understanding of the advice is a critical part of the advice process.

After investigating the case, we drew the following conclusions:

  • The Applicant was inexperienced in financial matters and had very limited knowledge of financial markets and products (as shown by her uncomplicated financial arrangements prior to receiving the inheritance).
  • The Applicant’s primary objective was to leave a legacy for her sons and grandchildren and therefore she wanted to place the money into a secure, capital-protected investment (as shown by her concern about how a proposed investment in a granddaughter’s name would be perceived).
  • The information in the SOA about capital volatility associated with the managed growth fund was generic in nature and was not likely to alert the Applicant to the potential for capital loss. It would have been prudent to put these warnings in language the Applicant was likely to understand.

We found that if the SOA had been expressed in language the Applicant was likely to understand, she would not have made the investment. We ordered the adviser to pay compensation to her.