Life insurance company TAL cut its cover for a woman with cervical cancer because she did not disclose having suffered depression when she took out the policy, the financial royal commission has heard.

The woman took out an income protection policy with TAL in October 2013, the commission heard on Friday.

In December that year, after being diagnosed with cervical cancer, she lodged a claim.

In June 2014, TAL examined her situation and voided the policy because it learned the customer had experienced depression and not admitted it in an initial interview. TAL said it would have declined cover if it had known about the depression.

The commission heard a recording of a phone call between the woman and a TAL representative, in which she was told her policy was void – despite her claim having nothing to do with depression.

“This is blowing my mind,” the woman said on hearing her policy was to be cancelled. “I certainly didn’t deliberately not disclose anything,”

She said she had no ongoing depression issues, and insisted she had disclosed everything she was asked about in her initial interview.

Asked about her depression, she said “I remember going to the doctor and crying”.

The woman took her case to the Financial Ombudsman Service, which found in her favour. TAL reinstated the policy.

“For 11 months, TAL made payments and supported her rehabilitation treatment then, without prior notice, that it would void the claim,” counsel assisting Rowena Orr QC said.

“The process demonstrates a lack of empathy and sensitivity to someone recovering from cervical cancer, and was made worse by the case manager implying the insured might need to repay benefits.”

TAL executive Loraine van Eeden accepted that.

But Ms van Eeden did not want to be drawn on whether TAL had been heavy-handed in its dealings with the client. Commissioner Kenneth Hayne then entered the discussion.

“That’s not how the system works,” he said. “What’s your view? Was it or was it not heavy-handed?”

Somewhat taken aback, Ms van Eeden agreed TAL’s behaviour was extreme.

That intervention followed an earlier discussion about a case manager who had learned that a TAL client – who had been in a six-year dispute with the company about a claim – had failed to declare insurance payments on her tax return.

The manager came up with a strategy where TAL would advise the customer that failing to declare the income put her in breach of tax law.

“Is it another heavy-handed tactic to intimidate the insured?,” Ms Orr said.

Ms van Eeden initially declined to comment. When pushed, she said she didn’t know if the move was heavy handed, “but it’s a tactic”.