One of Australia’s biggest life insurance companies abruptly stopped insurance pay-outs to a woman with cervical cancer because it discovered she had sought help for mental health years before her diagnosis.

TAL Life Limited began investigating the woman’s medical history because she’d taken out income protection insurance four months before her cancer diagnosis in December 2013, and after finding she’d sought help for mental health between 2007 and 2009, avoided her contract of insurance claiming she had failed to disclose a prior history of depression.

It stopped paying her $5,000 a month, which it had done between January 2014 and May 2014, and told her it wouldn’t have offered her cover if it had known about her alleged depression, even though it was unrelated to her cancer.

The woman, a self-employed health professional, was taken aback by the news, telling a TAL employee she was “stunned, shocked, incredibly sad and distressed”.

She took the matter to the financial ombudsman service in 2014.

The banking royal commission heard on Friday that TAL deliberately delayed its dealings with the ombudsman.

The commission heard that in mid-March 2015, TAL had another look at the woman’s medical history to see if blood tests she had taken for gynaecological issues, which she had disclosed in her application, could be classified as non-disclosure.

When TAL sought a retrospective underwriting opinion, the general manager of claims in TAL told the retail claims manager she couldn’t help feeling that TAL was “trying to make retrospective decisions when the facts at the time were different”.

The commission also heard that a couple of weeks before TAL was due to hold a conciliation meeting with the ombudsman, its claims decision committee said it had found additional medical evidence about the woman showing she had experienced “recent deteriorating weight loss, mood change, and fatigue” and her insurance would have been declined on that information.

But TAL waited for two weeks until the day before the conciliation meeting to tell the ombudsman it would be using that additional information as evidence to support its reason to avoid the woman’s insurance contract.

Senior counsel assisting the royal commission, Rowena Orr QC, asked if TAL had withheld that information until the last moment because it wanted to use the information to its “strategic advantage”.

Loraine van Eeden, from TAL Life Limited, replied: “I don’t know.”

Orr said: “It was part of a broader pattern of delay in the dealings with the ombudsman in this matter, wasn’t it?”

Eeden replied: “Yes.”

TAL eventually settled the matter with the ombudsman. It agreed to waive its right to recover the $25,000 it had already paid the woman, and then paid her another $25,000.

Eeden conceded to the banking royal commission that it was wrong to avoid the woman’s insurance contract.

She agreed the woman had made an innocent non-disclosure of an unrelated condition when she applied for income protection insurance. She said policies should only be avoided if there is fraudulent non-disclosure of unrelated conditions – such as someone claiming they are working when they are not – but not when there has been innocent non-disclosure of unrelated conditions.

The commission heard that TAL is now in the process of changing its controls and risk management of disputed claims, so disputed claims are not remitted back to original case managers but to separate case managers.

Also on Friday, the corporate regulator began civil proceedings against ANZ Bank over allegations ANZ failed to tell shareholders that the investment banks it hired to sell $2.5bn of its shares in 2015 bought $791m worth of shares themselves.

The Australian Securities and Investments Commission (Asic) has alleged that when ANZ tried to raise $2.5bn in 2015, the share sale did not attract the anticipated level of interest from institutional investors, so the investment banks running the share sale – JP Morgan Australia, Citigroup, and Deutsche Bank – had to purchase the leftover shares.

Asic alleges ANZ failed to tell the stock market about the purchase of the leftover shares before the market opened the next day.

It says more than $1.1bn of ANZ shares were traded the next day, and traders may have acted differently if they had all relevant information.

ANZ has said it will defend the allegations, saying it is not aware of any precedent for an ASX-listed company to disclose if shares had been bought by investment banks running a major share sale.

• Crisis support services can be reached 24 hours a day: Lifeline 13 11 14; Suicide Call Back Service 1300 659 467; Kids Helpline 1800 55 1800; MensLine Australia 1300 78 99 78