In Sahin & Anor v National Australia Bank Limited & Anor [2011] VSCA 64 the Victorian Court of Appeal varied a consumer credit insurance policy by National Australia Financial Management Ltd to cover a subsequent loan from NAB (and pay outstanding loan instalments) even though cover had not been taken out for that loan.

The issue was whether the Bank’s conduct in the course of an application for a subsequent loan had been misleading and deceptive. Mr and Mrs Sahin claimed that they understood the loan insurance for the first loan would continue in force under the second loan. When Mrs Sahin (the only income earner) was injured in a workplace accident, they sought to claim on the presumed insurance policy. However, the insurer rejected the claim, on the basis that the policy had terminated when the first loan was repaid. The bank said that it had offered Mr and Mrs Sahin loan insurance at the time of arranging the second loan, but they declined the offer because of the additional cost.

After assessing the trial evidence, the Court of Appeal concluded that the failure of the NAB loans manager to give Mr and Mrs Sahin a clear explanation of the effect on the loan insurance of the new loan structure, the failure of the insurer to send the cancellation letter to the correct address and the failure of the loans manager to apply the bank’s prudent procedure of obtaining a signed acknowledgment by Mr and Mrs Sahin concerning loan insurance, amongst other things, was misleading and deceptive.

“As a result Mr and Mrs Sahin were led into error. They believed that the loan insurance covered the second loan and would be automatically renewed. As a result of being misled in this way, they lost the opportunity to obtain loan insurance cover, and have been left without cover in circumstances where Mrs Sahin is disabled and unable to work. …Moreover, by the cancellation notice being sent to the wrong address, the insurer acted in breach of contract. The policy requires such notices to be sent to the ‘last known’ address of the insured. The insurer clearly did not do this, as the correct address was well known and had previously been used. It appears that the insurer did not use its past experience and update its records. The evidence of Mr and Mrs Sahin that they did not receive the notice of cancellation should be accepted. Accordingly, the breach of contract also caused them to be deprived of the opportunity to make a fully informed decision as to their insurance needs. On the evidence as a whole, their evidence that they would have sought insurance if they had known they had no cover should be accepted. As I have said, the trial judge made no findings critical of their evidence. … I conclude with the following comments. As my review of the evidence indicates, this case has been infected by a litany of errors by the bank and the insurer, many of them in breach of their own internal procedures. The conduct of the bank and the insurer constituted a recipe for misunderstanding, such as that which, on the balance of probabilities, occurred in this case. “