The corporate regulator is taking insurer HCF Life to court over allegations that contract terms in three of its policies regarding pre-existing medical conditions were unfair and could have misled the public.

The Australian Securities and Investments Commission (ASIC) alleges that the “pre-existing condition” term in the contracts for HCF Life’s “Recover” products suggest that the insurer can deny coverage to a policyholder if they did not disclose an existing medical condition when taking out their policy, even if the policyholder was unaware they had the condition at the time.

In documents filed with the Federal Court on Thursday, ASIC alleges that contract clauses in HCF Life’s Smart Term, Cash Back, Income Assist and Income Protect products are partially unenforceable.

This is because they contain an exclusion for any condition not disclosed, “where the signs or symptoms of which in the opinion of a registered medical practitioner, existed at any time before the cover commencement date, even if a diagnosis had not been made”.

The regulator alleges this clause suggests a consumer may be denied coverage even if they did not know they had a pre-existing condition.

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Section 47 of the Insurance Contracts Act says insurers are prevented from denying coverage for a pre-existing condition if the consumer was unaware of that condition when they took out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

But HCF Life strongly denies the claims, saying its contract clauses are acceptable under the current laws.

“HCF Life has been notified today by the Australian Securities & Investments Commission (ASIC) that four of its products will be tested in the courts following the introduction of new unfair contract term laws in 2021,” the company said in a statement.