Carolyn Philips (nee Durrand) v Tower Australia Ltd

CATCHWORDS : CONTRACT - Insurance - Other Disability Income - Workers Compensation, Workcare, Accident Compensation or similar State or Federal legislation - Disability Support Pension - Calculation of Interest - Date from which "it was unreasonable for the insurer to have withheld payment"

LEGISLATION CITED : Social Security Act 1991 (Cwlth) Insurance Contracts Act 1984 (Cwlth)

CASES CITED : Philips v Tower Australia Ltd [2007] NSWSC 946

TEXTS CITED : Broom H, Broom's Legal Maxims, 10th ed (1989) Pakistan Law House

PARTIES : Carolyn Philips (nee Durrand) (Plaintiff) Tower Australia Ltd (Defendant)

COUNSEL : Mr B Rayment QC, Mr M Gollan (Plaintiff) Mr R Cavanagh (Defendant)

SOLICITORS : Firths (Plaintiff) HWL Ebsworth (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50135/06 Carolyn Philips (Nee Durrand) v Tower Australia Ltd JUDGMENT The state of these proceedings 1 These proceedings were commenced in the District Court. Upon the proceedings being transferred to this Court it became plain that there was a mismatch as between:

i. the pleadings initially pursued before the District Court and

ii. the plaintiff's successful reliance upon an estoppel case in the proceedings heard by McDougall J [2007] NSWSC 946 [10 August 2007]. 2 Whilst it is unnecessary to repeat the record it is clear that McDougall J was unable to deal with all the issues likely to arise but found that the defendant was estopped from asserting that the policy had lapsed. 3 The effect of his Honour's order was that there was a contract of insurance between the plaintiff and the defendant commencing 12 February 1997 which remained on foot up to and including the date of his Honour's orders. 4 After the judgment the plaintiff paid the outstanding premium and lodged a formal claim for benefits under the terms of the Policy. The further hearing 5 Until recently the further hearing was to determine a number of issues and critically to determine whether or not the plaintiff had been disabled under the Policy from 1999. That dispute has been resolved leaving only the following matters for determination:

i. whether Social Security Benefits received by the plaintiff during the relevant period constitutes "Other Disability Income" within the proper construction of clause D19.0 of the Policy [the significance of the issue going to whether or not the defendant is entitled to apply an off-set];

ii. the date from which interest is payable; and iii. some costs issues. 6 There is no issue in relation to one matter: but for the defendant's belief that the Policy had lapsed, the plaintiff would have been entitled to benefits under the Policy in respect of total disablement for the period 3 December 1999 to the present.

7 The defendant has accepted its obligation to pay benefits under the Policy for that period. It claims, however, to be entitled to deduct amounts received by the plaintiff in social security benefits over the relevant time. The defendant has calculated what it claims to be the amount payable in accordance with Schedule A, reproduced below.

The crucial policy provision 8 The critical Policy provision relied upon by the defendant is clause D 19.0 in the following terms:

"OTHER DISABILITY INCOME is the monthly income received by you during Disability from :

(a) any other similar individual or group Disability Income Benefits Policy;

(b) Workers Compensation, Workcare, Accident Compensation or any other similar State or Federal Legislation;

(c) After 3 months of total disability, if you have locum cover insurance, other disability income will also include the current monthly income generated by your business and the deduction of those expenses directly incurred in generating such income re-imbursable under our Business Expenses Policy; and which exceeds one-tenth of you average monthly income."

and which exceeds 1/10th of your Average Monthly Income". 9 It is common ground that the plaintiff was receiving payments pursuant to the Social Security Act 1991 (Cth) having qualified for the receipt of disability support pension as provided for in section 94 of that Act. Section 17 10 Section 17 of the Social Security Act 1991 (Cth) entitled 'Compensation recovery definitions' provides that unless the contrary intention appears

"compensation" has the meaning given by subsection (2).

"Compensation Affected Payment" includes (a) a disability support pension".

Section 17(2) 11 Section 17 (2) provides that subject to subsection (2B), for the purposes of the Act, compensation means: "(a) a payment of damages [this is irrelevant presently]

(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme.

[Mr Rayment QC contended as follows in relation to sub paragraph (b): An illustration of such a thing presumably would be… a Commonwealth Act requiring… employers and employees to have a superannuation insurance policy for example, and then a contract entered into under that. So in other words, it would have to be a scheme producing a liability to enter into a contract and then a contract entered into under that scheme: … the superannuation, federal superannuation legislation is a case in point where employers have to contribute so much of the wages to a statutory scheme and so on.

But this is not such a thing. What my client did was just buy, as a consumer , a policy of insurance. She paid a premium with her own personal insurance policy, and there was no statute which she was there obedient to or that… anyone else was being obedient to when she entered into the contract.] (c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under an insurance scheme

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury".

"Paragraph 2 (d) does not apply to a compensation payment if: (a) the recipient has made contributions (for example by way of insurance premiums) towards the payment; and

(i) the agreement under which the contributions made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that compensation affected payments; or

(ii) the agreement does so provide but the compensation payment has been calculated without reference to the provision ". Section 94

13 Section 94 sets the qualifications for disability support pension, the relevant provisions being:

(1) A person is qualified for disability support pension if: (a) the person has a physical, intellectual or psychiatric impairment; and

(b) the person's impairment is of 20 points or more under the Impairment Tables; and

(c) one of the following applies: (i) the person has a continuing inability to work; (ii) the Health Secretary has informed the Secretary that the person is participating in the supported wage system administered by the Health Department, stating the period for which the person is to participate in the system; and (d) the person has turned 16; and

(e) the person either: (i) is an Australian resident at the time when the person first satisfies paragraph (c); or

(ii) has 10 years qualifying Australian residence or has a qualifying resident exemption for a disability support pension; or

(iii) is born outside Australia and, at the time when the person first satisfies paragraph (c) the person: (A) is not an Australian resident; and (B) is a dependent child of an Australian resident; and the person becomes an Australian resident while a dependent child of an Australian resident; and (f) the person is not qualified for disability support pension under section 94A. 14 The plaintiff's entitlement to a disability support pension arose pursuant to s94(1)(a) in that:

ii. she was accepted to have the impairment mentioned in s94(1)(b);

iii. she had within the meaning of s94(1)(c), a continuing inability to work;

iv. she was of the requisite age mentioned in s94(1)(d);

v. she was an Australian resident. 15 Section 94A had no application to the plaintiff.

Dealing with the issue 16 Ultimately the question of construction is a close one. The underlying determinant is whether or not payments of Social Security Benefits is pursuant to legislation which can be fairly characterised as similar to Workers Compensation, Workcare or Accident Compensation legislation. There are some obvious differences and there are some similarities. The similarities involve payment of a benefit: it is common to regard payments under accident compensation legislation as, for example, weekly benefits. That is because they are paid by reason of the fact that a person is unable to work. The disability support pension is paid because a person is disabled and cannot work. 17 As Mr Cavanagh appearing for the defendant submitted, Workers Compensation, Workcare, and Accident Compensation legislation are all statutory schemes set up to compensate persons in respect of an injury at work or an injury in a car accident case. His proposition was that the Social Security Act scheme here in focus, whilst not such a scheme, is what might be termed a statutory scheme set up by the Commonwealth government to provide benefits to a person who cannot work because of disability. It is in that sense that the defendant submits that there is a similarity between the Social Security Act scheme and the other federal legislation described in clause D 19.0 (b). Decision 18 Ultimately I have reached the view that the provisions of section 94 are relevantly sufficiently distinguishable from the concepts of Workers Compensation, Work care and Accident Compensation as not to qualify as "Other Disability Income" within the meaning of the relevant definition [clause D 19.0] in the policy. It is necessary to focus upon the meaning of the word 'similar' appearing in clause D19.0. To my mind in the instant context the social security payments do not qualify as relevantly 'similar' within the subject definition. In order to so qualify any relevant benefits would have to arise by reason of accident compensation schemes or statutory accident compensation schemes or the like. 19 The plaintiff had no entitlement to any such benefit. The plaintiff's claim for workers compensation was declined and she did not pursue it. She was not involved in any accident. 20 Clause D19.0 is not engaged in relation to any benefits received because of an inability to work per se. 21 The finding is that the Social Security Act 1991 (Cth) does not fall within the description: "Workers Compensation, Workcare, Accident Compensation or any other similar State or Federal legislation" within the meaning of clause D 19.0 of the policy.

The period across which interest is to be paid 22 The plaintiff seeks interest under section 57 of the Insurance Contracts Act 1986 (Cth), which relevantly provides: Interest On Claims (1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section; (2) The period in respect of interest that is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which payment is made … 23 While the defendant accepts that the plaintiff is entitled to interest under this section, there is dispute over the date from which "it was unreasonable for the insurer to have withheld payment". 24 The determination as to at what time it became 'unreasonable' for the defendant to withhold payment must be made having regard to the particular circumstances of the case. It is not relevant whether the insurer acted bona fide in denying the claim or when the judgment of the Court established the insurer's liability to pay. The award of interest must be calculated with reference to the period after which the Court concludes it would have been a reasonable time for completion of the insurer's investigation of the claim. This does not mean that the insurer is automatically liable to pay from the date on which benefits first accrued or the claim might have been lodged (cf: Sayseng v. Kellogs Superannuation (2007) 213 FLR 174 at [7]). 25 The plaintiff's counsel submits that the plaintiff's disability commenced on 2 November 1999, and that the insurance waiting period of 30 days would have been ample time for the insurer to conduct its investigations and establish that the plaintiff's claim was genuine. As such, the plaintiff claims interest from 3 December 1999. 26 The defendant claims that it was not until the service on the defendant of a report of Dr David Van Der Walt of 8 November 2001 that the defendant had access to any evidence of the plaintiff's entitlement to benefits. The defendant maintains that a period of three months represents a reasonable time for the defendant to investigate and accept the claim. As a result, the defendant asserts that interest should only be awarded from a date three months after the service of Van Der Walt's report [February 2002]. 27 The difficulty with the defendant's contention is that the alleged absence of evidence of the plaintiff's entitlement to benefits prior to November 2001 entirely due to the defendant's wrong. There was no dispute as to the fact that, were it not for the defendant's wrongful assertion that the policy had lapsed, the plaintiff would have immediately lodged a claim in 1999. Had she done so, she would have been required to obtain certain medical evidence, and the defendant would have been entitled to have her examined. 28 There is a long line of authority to the effect that 'no man can take advantage of his own wrong' [Cf. Broom's Legal Maxims, 10th edition, Pakistan Law House, 1989 at 191 et seq., noting that this maxim, being "based on elementary principles, is fully recognised in Courts of law and equity, and indeed, admits of illustration from every branch of legal procedure"]. The defendant therefore cannot rely upon an absence of medical evidence in order to avoid paying interest prior to 2001, if the absence of such evidence is due entirely to their own fault in wrongfully denying the plaintiff's entitlement to submit a claim under the policy. 29 It is now accepted that the plaintiff was, in 1999, medically entitled to benefits. The defendant argued that, despite this, the plaintiff would have been unable to obtain medical evidence in 1999 to support her eligibility. The defendant attempted to show that the medical reports of the plaintiff's treating doctors produced in 1999 were equivocal and did not suggest that the plaintiff was necessarily permanently disabled. For example, the defendant relied upon the report of the plaintiff's rheumatologist, Dr David Bossingham, who stated that "(a)t the moment one would have to have an open mind as to what was going to happen in the future", and expressed a 'hope' the plaintiff's condition would improve. 30 As Mr Rayment submitted, this evidence suffers from a number of flaws, including: i. The relevant question to be answered in 1999 under the policy was not whether the plaintiff was permanently disabled forever, but rather whether she was presently disabled from earning two thirds or more of her average weekly income [CB 21 at D17.7]. ii. The medical materials that existed in 1999 were not provided for the purposes of that question. They were treating doctors or doctors provided for other purposes. iii. The medical materials do establish that the plaintiff's treating doctors were aware, in 1999, that the plaintiff was significantly unwell. The plaintiff's condition was not invisible, and her doctors were already aware, in 1999, of the symptoms which lead Dr Van de Walt in 2001 to declare that the plaintiff satisfied the fund's definition of "ill health or total or permanent disablement". 31 In these circumstances, the evidence fails to establish any reason why the plaintiff would have experienced difficulty in obtaining medical support for her entitlement in 1999. There is no evidence that the plaintiff's condition was hidden, or that it only became obvious at a later date. Consequently, it is irrelevant if, because of the defendant's actions in denying the plaintiff's eligibility to lodge a claim, the plaintiff failed to actually provide the necessary medical evidence at the time in question. 32 As a result, the finding is that the plaintiff is entitled to be paid interest for a period commencing on 3 December 1999, 30 days after 2 November 1999. Bearing in mind that neither side adduced evidence on this issue, the finding is that this represents a reasonable time subsequent to the commencement of the plaintiff's disability for the completion of the insurer's investigation of the claim.

Interest calculations 33 The parties have agreed that an interest rate of 8.5% is to be applied throughout the whole period in which interest is to be paid. There is some dispute, however, as to how this interest should be calculated, taking into account the fact that the plaintiff would not have been entitled to receive all her benefits on the day on which she was first found to be eligible. 34 As submitted by Mr Cavanagh:

Clearly the plaintiff can't obtain interest on the whole amount from 1999 because… she was only receiving some of the benefits in 2008, so that would be an inequitable situation. 35 The plaintiff has calculated the interest owing by allowing interest on the whole amount for the whole period and then halving it [following the method applied in calculating past economic loss in common law]. On the plaintiff's calculation, this amounts to $111,769.60. 36 The defendant has applied a more complex calculation: taking the amount of benefits received by the plaintiff each year and assuming that those benefits were received in the middle of the year. This attempts to achieve a workable compromise based on the fact that, as of the middle of the year, the plaintiff would have been entitled to 6 months interest on the payments due at the beginning of the year, but would not have become entitled to interest on the end of year payments for a further 6 months. On the assumption that the plaintiff succeeded on both of the issues canvassed above [the entitlement to offset the disability allowance and the period during which interest should be calculated], the defendant calculated the amount of interest owing as $100,694.52. 37 Neither party called expert evidence in support of the argument that its mode of calculation provided the more exact approximation of the interest owing. I infer that this was because the cost of this approach did not appear to be justified in view of the amounts involved. 38 In consequence, in my mind the fair approach is to award interest in the amount of $106,231.56, which represents the average of the two methods of calculation. Costs 39 Mr Rayment submitted that notwithstanding that McDougall J, having heard submissions, had ordered the plaintiff to pay the defendant's costs of the District Court proceedings [for reasons appearing in paragraphs 61-72 of his Honour's judgement], I should now intervene and in effect order indemnity costs by reason of the making by the plaintiff of a compromise offer on 27 September 2005. 40 This submission is rejected. The matters dealt with by McDougall J cannot now be revisited. 41 Naturally the determination of costs incurred in relation to the present tranche of matters litigated may be the subject of agreement, failing which the parties will be given an opportunity to furnish submissions in relation to the proper order for costs. Short minutes of order 42 The parties are directed to bring in short minutes of order ****************

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.