Australian Mutual Provident Society v Goulden

The plaintiff in this action is the Australian Mutual Provident Society ("the A.M.P."). It is a New South Wales corporation which carries on throughout Australia the business of life insurance. It is registered to carry on such business under the Life Insurance Act 1945 Cth and has, at material times, maintained a statutory fund in accordance with the requirements of s. 37 of that Act.

The first defendant ("the insured") has been totally blind since birth. On or about 16 September 1980, the A.M.P. issued, at the request of the insured, a policy of insurance whereby, in consideration of an annual premium, the A.M.P. agreed to pay a stipulated amount on the anniversary of the policy immediately preceding his sixty-first birthday or upon his earlier death. This policy, being "a policy insuring payment of money on death (not being death by accident or specified sickness only)", came within the definition of life policy in s. 4(1) of the Act. On 22 September 1981, the insured requested the A.M.P. to amend the policy by adding to it, in consideration of the payment of an additional annual premium, a benefit known as a "waiver of premium benefit". The effect of that additional "benefit" would have been that, "upon total disablement" of the insured, the A.M.P. would, subject to the conditions set out in the policy, "waive the payment of each premium falling due during the uninterrupted continuance of the disablement". For the purposes of any such additional benefit, "total disablement" is defined as meaning "disablement resulting from an illness or accident or injury to the [insured] commencing or occurring after the date of effecting [the] policy but before the policy anniversary preceding the attainment of age 60, as a result of which the [insured] is unable, for an uninterrupted period of at least 6 months, to engage in any occupation or employment or business for remuneration or profit".

If the A.M.P. had agreed to amend the insured's life policy by adding the waiver of premium benefit, the agreement to provide such additional cover would have been incorporated within the life policy. That being so, the agreement for the additional cover would have been a "continuous disability insurance contract" within the definition of that phrase in s. 4(1) of the Life Insurance Act. The effect of other interrelated definitions in s. 4(1) is that "life insurance business" is defined to include, among other things, "business of or in relation to, the issuing of, or the undertaking of liability under, continuous disability insurance contracts": see definitions of "life insurance business" and "continuous disability insurance business". References in this judgment to "life insurance business" are to be understood in that sense.

The A.M.P. refused to amend the insured's policy by adding a waiver of premium benefit. The reason for this refusal was, and was stated to be, the insured's blindness. In due course, the insured lodged a complaint about that refusal with the Counsellor for Equal Opportunity of the State of New South Wales. The Counsellor referred the complaint to the Equal Opportunity Tribunal established under s. 69B of the Anti-Discrimination Act 1977 N.S.W.. That Tribunal proposes to proceed with a hearing of the complaint on the basis that the provisions of s. 49K of the Anti-Discrimination Act are validly applicable to regulate the practices of registered life insurance companies in carrying on the business of life insurance. For present purposes, the relevant provisions of s. 49K are to be found in sub-s. (1) of the section which reads:

It is unlawful for a person who provides, for payment or not, goods or services to discriminate against a physically handicapped person on the ground of his physical impairment -

(a) by refusing to provide him with those goods or services; or

(b) in the terms on which he provides him with those goods or services.

Section 49K(2) contains a number of exclusions from s. 49K(1) which are not of present relevance. Other sections contain exclusions which are relevant. Specific reference is made to them subsequently in this judgment. The words "physical impairment" are defined in s. 4(1) of the Anti-Discrimination Act as meaning, in relation to a person, "any defect or disturbance in the normal structure and functioning of the person's body, whether arising from a condition subsisting at birth or from illness or injury, but does not include intellectual impairment".

By its statement of claim in the present action, which was brought in the Court's original jurisdiction, the A.M.P. seeks a declaration to the effect that s. 49K of the Anti-Discrimination Act is invalid "insofar as it purports to apply to the activities of [the A.M.P.] in business within the meaning of the Life Insurance Act 1945 Cth on the ground that the said Section 49K is inconsistent with the provisions" of that Act. The defendants in the action, other than the insured, are members of the Equal Opportunity Tribunal. They do not seek to play any active part in the proceedings. For his part, the insured has demurred to the whole of the plaintiff's statement of claim. It is that demurrer which is presently before us. By it the insured raises for consideration on demurrer the issue whether there is any relevant inconsistency between s. 49K of the Anti-Discrimination Act and the provisions of the Life Insurance Act.

The Life Insurance Act ("the Act") is framed on the basis that it will operate in the context of local laws of the various States and Territories of the Commonwealth. In some cases (see, e.g., ss. 67(7) and 94(7)), that basis is made express. In other cases (see, e.g., s. 139A), it is clearly implicit in particular positive provisions of the Act. Generally, however, it appears from the restricted nature of the matters with which the provisions of the Act actually deal. In particular, the Act does not provide for the incorporation, or generally regulate the internal management, of the companies which are registered under its provisions. The ordinary laws of a State or Territory relating to incorporation, or conduct of the affairs, of such companies are left to apply except to the extent that they are modified or excluded by provisions of the Act dealing with particular subject-matters. Nor does the Act establish a detailed and special code of contract or insurance law to be applied in relation to the contracts of insurance written by registered life companies. Again, the ordinary provisions of the local law of the particular State or Territory are left to apply except to the extent that they may be so modified or excluded by provisions dealing with particular subject-matters such as proof of age (ss. 81 and 82), mis-statement of age (s. 83), the effect of incorrect statements in proposals (s. 84), minors (s. 85) and what constitutes an "insurable interest": s. 86.

Among the matters in respect of which the Act makes special provision are the statutory funds of life insurance companies, the actuarial investigation of their affairs, the rates of premium charged and various aspects of life insurance policies. In the context of the statutory scheme of registration which confines the carrying on of life insurance business in Australia to companies registered under the Act, those provisions are directed towards ensuring adequate supervision and regulation of the insurance practices of life insurance companies to protect policy holders in respect of, among other things, the financial soundness of such companies, their statutory funds and the financial viability of the rates of premium charged for particular classes of insurance. Central to the practices of the insurance companies which the provisions of the Act are designed to regulate and control are the classification of risks and the setting of premiums. They are the essence of life insurance business. Subject to s. 78, to which we shall refer in a moment, the Act does not attempt to restrict the business judgment of a registered life insurance company in classifying risks and setting premiums. To the contrary, the Act proceeds on the underlying legislative assumption that, subject to some qualifications for which the Act provides, the life insurance business of such a company is more likely to prosper and the interests of its policy holders are more likely to be protected, if it is permitted to classify risks and fix rates of premium in that business in accordance with its own judgment founded upon the advice of actuaries and the practice of prudent insurers.

The Act superimposes on the base of that assumption a number of stringent requirements and controls. In particular, s. 78 of the Act provides:

(1) A company shall not issue any policy unless the rate of premium chargeable under the policy is a rate which has been approved by an actuary as suitable for the class of policy to which that policy belongs.

(2) The Commissioner may, at any time, require the company to obtain, and to furnish him with, a report by an actuary as to the suitability of the rate of premium chargeable under any class of policy issued by the company and, if the actuary considers that the rate is not suitable, a report as to the rate of premium which the actuary approves as suitable in respect of that class of policy.

(3) Where any requirement is made under sub-section (2) in respect of the rate of premium chargeable under any class of policy, the company shall not issue any policy of that class until the company has, in accordance with the requirement, obtained the approval of the actuary to the rate of premium.

(4) An actuary in approving a rate of premium in respect of any class of policy under this section shall have regard to the maximum rate of commission or rebate proposed to be paid or allowed to any person in respect of that class of policy.

When the scheme of regulation established by the Act is considered in the light of the matters which we have mentioned, the Act should be understood as giving expression to a legislative policy that the protection of the interests of policy holders is to be achieved by allowing a registered life insurance company to classify risks and fix rates of premium in its life insurance business in accordance with its own judgment founded upon the advice of actuaries and the practice of prudent insurers. In the words of Dixon J. in Victoria v. The Commonwealth [1] , it "would alter, impair or detract from" the Commonwealth scheme of regulation established by the Act if a registered life insurance company was effectively precluded by the legislation of a State from classifying different risks differently, from setting different premiums for different risks or from refusing to insure risks which were outside the class of risk in respect of which it wished to offer insurance. In particular, State legislation which, either absolutely or subject to qualifications and exceptions, made it generally unlawful for a life insurance company to take account of physical impairment in determining whether it would or would not accept a particular proposal or the terms upon which it would grant insurance cover would be inconsistent with the essential scheme of the provisions of the Act regulating the issue of policies and the fixing of premiums. Indeed, such legislation would undermine and, to a significant extent, negate the legislative assumption of the underlying ability of a registered life insurance company to classify risks and fix rates of premium in accordance with its own judgment based upon actuarial advice and prudent insurance practice upon which, as has been mentioned, the stringent controls and requirements which the Act imposes in respect of life insurance business of registered life insurance companies are predicated.

If s. 49K(1) were validly to apply to life insurance companies in respect of the insurance policies which they write, it would, according to its terms, have the effect of rendering prima facie unlawful any refusal to insure a person or any adverse differentiation in the terms of insurance if such refusal or adverse differentiation was on the ground of the "physical impairment" of the person concerned. That operation of the section, if left unqualified, would effectively preclude a registered life insurance company from differentiating, in classifying risks or in fixing rates or conditions in its life insurance business, on the grounds of the "physical impairment" of a physically handicapped proposer. In the context of the wide definition of physical impairment in s. 4(1), such an unqualified provision would be quite inconsistent with the business practice of any prudent life insurance company and with accepted actuarial practice in relation to the classification of risks and determination of rates by such an insurer. As has been indicated, however, other provisions of the Anti-Discrimination Act qualify the wide prima facie operation of s. 49K(1). For present purposes, the relevant qualifying provisions are to be found in ss. 49M and 49N. We turn to consider whether those provisions have the effect of avoiding the conflict which would otherwise exist between s. 49K(1) and the provisions of the Life Insurance Act. In our view, they do not.

Section 49M of the Anti-Discrimination Act provides that nothing in Pt IVA (which is the part in which s. 49K is found) renders unlawful:

discrimination against a physically handicapped person on the ground of his physical impairment in the terms or conditions appertaining to a superannuation or provident fund or scheme. Section 49N provides that nothing in Pt IVA renders unlawful: discrimination against a physically handicapped person on the ground of his physical impairment with respect to the terms on which an annuity, a life assurance policy, an accident or insurance policy or other policy of insurance is offered or may be obtained where -

(i) based upon actuarial or statistical data from a source on which it is reasonable to rely or, where there is no such data, on such other data as may be available; and

(ii) reasonable having regard to the data, if any, and any other relevant factors; and

(b) the source on which the data referred to in paragraph (a)(i) is based is disclosed to the Tribunal, where the Tribunal so requires, and any other relevant factors to which regard has been had as referred to in paragraph (a)(ii) are disclosed to the Tribunal, where the Tribunal so requires.

Those two sections must be read in the context of s. 109 of the Anti-Discrimination Act which provides that the onus of proving that a particular case comes within an exception from conduct that is unlawful under the Act lies "upon the respondent", that is to say, upon a person against whom a complaint is made.

When the provisions of ss. 49K(1), 49M and 49N of the Anti-Discrimination Act are read together, it is apparent that the actual scope of the prima facie prohibition which s. 49K(1), if validly applicable, would impose in relation to the life insurance business of registered life insurance companies is not confined by the subsequent sections. Even as qualified by those subsequent sections, the effect of s. 49K(1) would continue to be to render prima facie unlawful any discrimination by a registered life insurance company in accepting proposals, classifying risks or fixing the terms or conditions of insurance whenever such discrimination was on the ground of the physical impairment of the particular proposer or insured. That prima facie unlawfulness would prevail unless the company could affirmatively establish that the relevant discrimination on the grounds of physical impairment came within the exception of s. 49M or s. 49N. The exception in s. 49M is a very limited one. It applies only to discrimination "in" the actual "terms or conditions appertaining to a superannuation or provident fund or scheme". While the exception in s. 49N is more broadly based, it would seem at least arguable that it would never permit a life insurance company to refuse altogether to accept a proposal for life insurance on the ground of some physical impairment of the proposer since it is limited to discrimination "with respect to the terms" on which the relevant policy is offered or may be obtained. More importantly, the exception in s. 49M would only apply to exclude a case from the prima facie unlawfulness imposed by s. 49K(1) if the insurance company established that the discrimination, being based on actuarial or statistical data, was "reasonable having regard to the data, if any, and any other relevant factors". That is to say, "reasonable" having regard to any "relevant factors" within the context of the Anti-Discrimination Act.

The overall result is that, subject to the limited exception of s. 49M, the provisions of s. 49K(1) of the State Anti-Discrimination Act would, if validly applicable to regulate the life insurance business of registered life insurance companies, effectively preclude such companies from taking account of physical impairment in classifying risks and rates of premium and other terms and conditions of insurance in the course of their life insurance business in New South Wales in any case which could not be positively justified, under s. 49N, as "reasonable", having regard to any "factors" which may be "relevant" for the purposes of that Act. If so applicable, the provisions of s. 49K(1) of the State Act would qualify, impair and, in a significant respect, negate the essential legislative scheme of the Commonwealth Life Insurance Act for ensuring the financial stability of registered life insurance companies and their statutory funds and the financial viability of the rates of premium and other terms and conditions of the policies of insurance which they write in the course of their life insurance business. That being so, s. 49K(1) is inconsistent with the Commonwealth Act to the extent that it purports to apply to the life insurance business of registered life insurance companies. To that extent, s. 49K(1) is invalid under s. 109 of the Constitution.