Friday, 5 March 2004
ASTERON LIFE LTD (formerly ROYAL & SUN ALLIANCE FINANCIAL SERVICES LTD) v ZEIDERMAN
Judgment
1 SPIGELMAN CJ: Meagher JA sets out the issues, the relevant statutory provision and outlines the reasons of Rein DCJ. The characterisation of a contractual term for purposes of a statutory formulation will often be a matter on which judicial minds will differ. So it proves in the present case.
2 The issue arising in this case under s47(2) of the Insurance Contracts Act 1984 (Cth) ("the Act") can be stated in the following terms:
"Is the provision in the contract that: 'We will not pay for cancer if first diagnosed within three months after the issue date in the schedule …' a 'provision … that has the effect of limiting or excluding the insurer's liability under the contract by reference to a sickness or disability to which the insured was subject to a time before the contract was entered into'?"
3 The operation of s47(2) precludes the insurer from relying on a provision if the provision possesses the characteristics set out in that subsection. Those characteristics are twofold: first, that the provision has the effect of limiting or excluding the insurer's liability and, secondly, that that limitation or exclusion operates "by reference to" a sickness or disability to which the insured was subject at the time of the contract.
4 Nothing turns on the first characteristic. The clause in question plainly has the "effect" of limiting or excluding the insurer's liability. This case turns on whether or not that limitation or exclusion occurs "by reference to" sickness or disability to which the insured was subject at the time of the contract.
5 I find it necessary, for purposes of my analysis, to set out in full the relevant provisions of the policy:
"Definitions
18. Serious medical conditions and major surgery covered for the insured person
…
Cancer
Means the presence of one or more malignant tumours including malignant lymphoma, Hodgkin's Disease, leukaemia, malignant bone marrow disorders and melanomas greater than or equal to Clark Level 3 or greater than or equal to 1.5mm depth of invasion as determined by histological examination, which are characterised by the uncontrolled growth and spread of malignant cells and the invasion and destruction of Norman tissue, but specifically excludes:
· tumours which are histologically described as pre-malignant or show the malignant changes of 'carcinoma in situ' and not requiring radical surgery, and
· melanomas which are both less than Clark Level 3 and less than 1.5mm depth of invasion as determined by histological examination, and
· all other types of skin cancers, and
· Kaposi's sarcoma and other tumours associated with AIDS or the HIV virus, and
· prostatic cancers which are histologically described as TNM Classification T1 (including T1a and T1b) or are of another equivalent or lesser classification. This means that only minor prostate cancers are excluded.
(3 month period applies - see note at end)
…
Coronary artery angioplasty
means undergoing for the first time of Angioplasty, (with or without Atherectomy, Laser Therapy or insertion of a Stent) to the coronary arteries, that is considered necessary by a cardiologist to treat coronary artery disease. Payment is limited to the greater of 10% of the sum insured and $10,000, up to a maximum of $25,000. The Recovery sum insured is then reduced by the amount paid, with the balance payable on diagnosis of any one of the other specified conditions. This benefit can only be paid once.
(3 month period applies - see not at end)
Coronary artery surgery
means surgery to treat coronary artery disease but does not include angioplasty, intra-arterial procedures or other non-surgical techniques.
(3 month period applies - see note at end)
Heart attack
means the death of a portion of the heart muscle as a result of inadequate blood supply to the relevant area. The basis for diagnosis of a heart attack shall include:
· confirmatory electrocardiogram (ECG) changes, and
· elevation of cardiac enzymes above standard laboratory levels of normal.
Confirmation by a specialist may be required.
(3 month period applies - see note at end)
…
Stroke
means any cerebrovascular accident or incident producing neurological sequelae lasting more than 24 hours. This includes infarction of brain tissue, intracranial or subarachnoid haemorrhage, embolisation from extracranial source, but excludes transient ischaemic attacks and cerebral symptoms due to migraine.
(3 month period applies - see note at end)
…
We will not pay:
· for cancer if first diagnosed,
· for heart attack or stroke if first occurred, or
· for coronary artery angioplasty, coronary artery surgery, repair or replacement of aorta, or repair or replacement of valves, if the disease or condition which the surgery is directed is first diagnosed,
within three months after the issue date in the schedule or the date of the last reinstatement of this policy (see section 10).
We will pay for any new and unrelated occurrence of these conditions or procedures (except for Coronary Artery Angioplasty) after this 3 month period."
6 The exclusion clause does not refer, in terms, to the existence of the sickness or disability at the time of the contract. The Appellant's submission is, in essence, that the word "reference" requires an express reference. The absence of an express reference is not, in my opinion, determinative if, as a matter of substance, the exclusionary clause is appropriately characterised as falling within the statutory formulation.
7 As Gleeson CJ said in East End Real Estate Pty Limited v C E Heath Casualty & General Insurance Limited (1991) 25 NSWLR 400 at 403F:
"When an insurer decides to frame a policy of insurance in such a way that a particular act or circumstance will bring about the result that the insurer is not liable to be insured there is often a range of drafting techniques available to produce that result, and the selection of one rather than the other may be a matter of form and not of substance. In the case of a policy of professional indemnity insurance there may be a condition obliging the insured promptly to notify all claims received or, as in the present case, the insurance may be expressed to cover only claims that are not only received but also notified during a particular period."
8 His Honour went on to say at 404C, in a passage referred to with approval in the joint judgment in Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 at 668-669:
"It would hardly be consistent with the purposes thus described to construe the language of s54 in such a way as to make its operation depend upon the choice that is made between various available drafting techniques."
9 His Honour went on to say in East End, at 403G, again with reference to s54 of the Act, in a passage referred to with approval in the joint judgment in FAI Insurance Co Limited v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 at [32]:
"In my view, by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature has evinced an intention to avoid the result that the operation of s54 depends on matters of form."
10 The words under consideration in s54 in this line of authority were: "… where the effect of a contract of insurance would … be that the insurer may refuse to pay a claim …". This is at the same level of generality, and similarly avoids reference to a particular type of contractual provision, as the first of the characteristics in s47 I have set out above, i.e. the reference to "the effect of limiting or excluding the insurer's liability".
11 A similar approach is appropriate when construing s47 (and s46, which is in parallel terms with respect to contracts of insurance of property). The avoidance of dependence on form should extend to the second of the characteristics I have mentioned, i.e. the words "with reference to", on which this case turns. An anti-avoidance provision, such as s47, is intended by Parliament to operate on the basis of substance not form.
12 The use of the word "reference" would, ordinarily, mean 'express mention of'. However, that is not the only meaning of the word in the phrase "with reference to". It can also mean "on the basis of" or "because of". In my opinion, the words in s47 should be construed in the latter sense.
13 Sections 46 and 47 must be construed in the context of the Act as a whole and, in particular, in the context of the substantial amendment of the common law effected by Part IV of the Act with respect to the consequences of non-disclosure. That Part, the provisions of which it is unnecessary to set out, has the effect that the insurer bears the risk of unknown defects, relevantly, about the health of the person insured at the date of the contract within certain limits that are not material here. Shortly and simply put, there is no non-disclosure, of a character entitling the insurer to avoid meeting his obligations under the contract, in the case of a failure to disclose a sickness or a disability of which the insured was not, and could not reasonably have been, aware.
14 In the absence of ss46 and 47, it would have been possible for an insurer to circumvent the impact of Part IV, by limiting or excluding liability for losses resulting from defects that existed at the time the contract was entered into, whether the insurer was aware of them or not. As the Australian Law Reform Commission recognised in its report, on which this Act is based (Insurance Contracts: ALRC 20), such a contractual provision would have the same effect as a provision requiring the insured to disclose material facts, whether he knew of them or not. The Commission said:
"[84] Some absolute warranties of existing fact might be rephrased as exclusions from cover. An example is the common exclusion of pre-existing illness contained in a personal accident policy. This applies to any pre-existing illness, even if the insured was not, and could not reasonably have been, aware of it. Exclusions of that type are as objectionable as analogous warranties. Where exclusion is based on the state or condition or the subject matter of the insurance, the insurer should not be able to rely on that exclusion if the insured proves that, at the time the contract was entered into, he did not know, and a reasonable man in his circumstances would not have known of the existence of the relevant state or condition."
15 I have set out above the definitions in the policy under consideration of the various medical conditions to which the three month period applies. It can be seen that certain matters are specifically excluded from the list of cancers to which the policy responds: tumours, melanomas below a certain size, other skin cancers, certain other kinds of tumours and prostatic cancers. These are exclusions from the cover of a character which are not, in any way, either expressly or as a matter of substance related to the fact that the sickness or disability was one to which the insured was subject at the time the contract was entered into. They identify insured events to which the policy does not respond at all.
16 An insurer is entitled to exclude cover for particular events, irrespective of when they occur, and an exclusionary provision of that character does not fall within the statutory preclusion in either s46 or s47 of the Act because it could not be said that a limitation or exclusion was made "by reference to" a condition of a thing or a sickness or disability at the time the contract was entered into. When the time of entry into the contract is irrelevant to the exclusion, the sections do not apply.
17 The position in this respect is accurately stated in an example given by David St L Kelly and Michael Ball, Principles of Insurance Law in Australian and New Zealand, Butterworths, Sydney, 1991 at par 6.42, with reference to s46:
"Consequently, a provision in a motor vehicle policy excluding liability if the vehicle is unroadworthy at the time of a loss would not be affected, even if the vehicle was also unroadworthy at the time the contract was entered into."
18 In the present case, however, the exclusion clause contained in the three month limitation period is, in my opinion, of a different character. I have set out above the terms of the exclusion and the definition of the various medical conditions and surgery to which the three months period applies.
19 The application of the exclusion clause to a heart attack or stroke turns on an "occurrence" rather than a diagnosis. The definitions of heart attack and stroke indicate that, in each case, there is an identifiable event of a character not capable of having occurred at a significantly earlier time, i.e. before the contract.
20 In the case of cancer and coronary surgery, however, each turn on the time at which the condition was "first diagnosed". In the case of cancers the definition is phrased in terms of "the presence of" certain kinds of cancers. In the case of coronary artery angioplasty and coronary artery surgery each is concerned with the date of diagnosis of the "disease or condition which the surgery is directed at".
21 If the medical conditions to which the three month period related in the case of a first diagnosis were of a character of which it could be said that their initiating cause may emerge for the first time within a three month period, (compare the occurrence of a heart attack or stroke), then I would have no doubt that it fell into the same category as the other exclusion which I have discussed above, i.e. the exclusion from the contract of certain kinds of tumours, melanomas, sarcomas and prostatic cancers.
22 However, a cancer, defined in terms of the presence of one or more of the kinds of cancers identified (or the underlying disease or condition which leads to coronary artery surgery of the kind identified) is ordinarily present over the whole of the period of three months before diagnosis, indeed, other than on a legally irrelevant de minimis basis, is inevitably present. Where a person has chosen a criterion of operation which is inevitably associated with another criterion, the choice of the former satisfies a statutory formulation that that criterion takes effect "with reference to" the latter.
23 In my opinion, in these circumstances, considered as a matter of substance, the exclusion clause for first diagnosis does answer the statutory description in s47(2). The limitation or exclusion effected by the three month provision is a limitation or exclusion which operates by reference to - in the sense of is based on - a sickness or disability that existed at the time of the contract. The effect of the exclusion is the same as a provision dealing with misrepresentation and non-disclosure of the character regulated by Part IV of the Act.
24 It is relevant that the policy does respond to a pre-existing illness which is diagnosed after the three month waiting period. Accordingly, the exclusion clause does not entirely transfer the risk of pre-existing illness to the insured, as the insurer retained the risk of all pre-existing illness diagnosed beyond the three month waiting period. The insured does bear the risk of latent illness during the three month period. However, the fact that the exclusion does not extend to pre-existing conditions diagnosed after three months, does not prevent the provision being characterised as falling within the formulation in s47(2). Insofar as the contractual provision has the effect of excluding liability, it falls within the statutory preclusion.
25 The Appellant relied, alternatively, on the proposition that there was no "loss" within s47(1) of the Act.
26 The Appellant submits that the policy responds to a "diagnosis" and no consequent "loss" is required for the policy to respond. It submits that the word "loss", in its natural and ordinary meaning, does not apply to the mere existence of a sickness or disability, as distinct from some consequence of such a condition. It further submits that the broad reading of the word "loss" in s47(1) of the character given to it by Rein DCJ, effectively reading it as equivalent to 'an insured event', renders s47(1) otiose.
27 It is not the experience of the Court that parliamentary draftsmen are so averse to redundancy or repetition that the Court must strain to give independent and separate operation to all the words of a statute. The principle of interpretation that, if possible, all words must be given meaning and effect is a weak principle, if it is to be applied to reach a conclusion that every provision must have some kind of operative effect. The principle is, as Mason CJ put it, "of limited application". (Chu Kheng Lim v Minister for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR 1 at 13.1.)
28 There is an important qualification to the general rule, which O'Connor J identified, with reference to authority:
"Courts will, however, when necessary take cognisance of the fact that the legislature does sometimes repeat itself, and does not always convey its meaning in the style of literary perfection." ( Brisbane City council v Attorney General for Queensland (1908) 5 CLR 695 at 720.)
29 In the context of the whole of the legislative scheme, particularly the purpose of ss46 and 47 to prevent avoidance of the Act's regulation of misrepresentation and non-disclosure, the reference to "loss" in each of ss46(1) and 47(1) should not be construed to confine the preclusive operation of ss46(2) and 47(2).
30 Subsection (1) of each of the two sections identifies the need for a claim to be made, as a precursor to the reliance by the insurer on an exclusion clause, which reliance is precluded by subsection (2) of each section. The use of the word "loss" is, in my opinion, merely designed to indicate the circumstances, in accordance with the particular insurance contract under consideration, which can give rise to claims. It is not, in my opinion, employed in the sense suggested in the Appellant's submissions, to require the identification of a monetary or other disadvantage, over and above the circumstances which cause the policy to respond, prior to the operation of an exclusionary clause precluded by ss46(2) and 47(2).
31 In my opinion, s47 is intended to operate upon provisions of contracts of insurance of a particular character, the scope and effect of which is observable from the terms of the contract of insurance. The section does not turn on the occurrence of additional events for which the contract of insurance does not provide.
32 Section 47 is concerned with the circumstances in which a policy responds and with circumstances equivalent in their effect to those which, but for the change of the law effected by Part IV, would entitle an insurer to avoid a policy for reasons of non-disclosure. This concern is best served by ensuring that the provisions of ss46 and 47 apply in the same range of situations as equivalent non-disclosure provisions would apply. This, in my opinion, extends to the whole of the circumstances in which a policy responds. This purpose is not served by restricting the operation and effect of ss46 and 47 only to circumstances in which there exists an additional "loss", other than that provided for in, or presumed to flow from, an event identified in the policy as one which causes the policy to respond.
33 In my opinion, the appeal should be dismissed with costs.
34 MEAGHER JA: Proceedings were brought by the respondent, Mr Zeiderman, against the appellant Asteron Life Limited (formerly known as Royal & Sun Alliance Financial Services Limited), in connection with a "Recovery Insurance" policy issued on 9 February 2000.
35 Cancer was one of the medical conditions the diagnosis of which entitled the insured to payment, the benefit payable being $280,000.00. The policy provided, however, that "We will not pay where certain medical conditions (see Section 18) are diagnosed or occur within 3 months from the issue date in the Schedule" (i.e. 9 February 2000). Section 18 provided, relevantly, "We will not pay for cancer if first diagnosed .. within three months after the issue date in the schedule - ".
36 Unfortunately, Mr Zeiderman was diagnosed with testicular cancer. On Mr Zeiderman's case, this diagnosis was made on 8 May 2000. It is agreed that Mr Zeiderman had no knowledge of the existence of a tumour before effecting the policy although it had been present for many months, and he first became aware of a problem in his groin in April 2000. He was operated on on 5 May 2000, where an orchidectomy on his right testicle was performed. It is also agreed that, although not symptomatic before April 2000, the cancer had taken root well before February 2000.
37 On 8 May 2000 a Dr Delprado issued a histopathological report diagnosing cancer (or, to be more precise, "embryonal carcinoma"). That report was received by a Dr Wynes, who was the partner of Dr Phillip Brenner, who was treating Mr Zeiderman, and who apparently informed him on 9 May 2000.
38 Mr Zeiderman claimed under his policy, and the appellant refused to pay because of the "exclusion clause". He then sued the insurer, and Rein DCJ found for him.
39 His Honour had no difficulty in finding, and on this point he was clearly correct, that if the policy stood on its own, and was not affected by any statute, the appellant was not liable to pay. However, his Honour held that this result is negatived by s. 47 of the Insurance Contracts Act.
40 That section provides as follows:
"Pre-existing sickness or disability
(1) This section applies where a claim under a contract of insurance is made in respect of a loss that occurred as a result, in whole or in part, of a sickness or disability to which a person was subject or had at any time been subject.
(2) Where, at the time when the contract was entered into, the insured was not aware of, and a reasonable person in the circumstances could not be expected to have been aware of, the sickness or disability, the insurer may not rely on a provision included in the contract that has the effect of limiting or excluding the insurer's liability under the contract by reference to a sickness or disability to which the insured was subject at a time before the contract was entered into".
41 It is apparent that the policy did not allude to the date of the insured's knowledge, as the Act does not allude to any exclusion periods.
42 The learned judge as I have said, held that s. 47(2) had the effect of negativing the 3 month exclusion provision, and that therefore Mr Zeiderman was entitled to full payment of the $280,000.00.
43 His Honour's judgment is densely reasoned, but on this point is encapsulated in two key paragraphs, [47] and [49]. In the former paragraph, his Honour said:
"[47] We are concerned then with an insured who has contracted a sickness or disability but who is unaware of that fact at the commencement of the policy. …What the exclusion does is exclude cover not for all persons with unknown conditions prior to the commencement of the policy but only for some of them. In my view, the effect of the exclusion remains as one which excludes persons because they unknowingly had the condition before the commencement even though it does not purport to exclude all of them."