De Smeth v NSW Fire Brigades Superannuation Pty Ltd

Judgment 1Onno De Smeth was formerly a member of the New South Wales Fire Brigade and a member of the Crown Employees (NSW Fire Brigades Firefighting Staff Death and Disability) Superannuation Fund of which NSW Fire Brigades Superannuation Pty Limited, the first defendant, was trustee. The trustee maintained a group life insurance policy with Suncorp Life and Superannuation Limited, the second defendant. 2The policy provided that in the event that an off-duty injury resulted in the total and permanent incapacity of an insured person, who was a permanent firefighter, a lump sum benefit was payable. Mr De Smeth was a permanent firefighter. He was involved in a motor vehicle accident on 21 February 2009. He suffered a comminuted fracture traversing the mid shaft of the tibia and mid lower shaft of the fibula together with acute medial compartment osteoarthritis of the right knee. 3"Off Duty Injury" is defined in the policy to mean any personal injury or disease that is not an "On Duty Injury". That term is defined to mean a personal injury arising out of or in the course of employment as a firefighter and includes specified events. 4Total and permanent incapacity was defined in the policy as follows: "Total and Permanent Incapacity means that the Firefighter is unlikely, by reason of ill-health (whether physical or mental) to ever again engage in gainful employment for which the Firefighter is reasonably qualified by education, training or experience." 5The trust deed provided as follows: "16.2 Total and permanent incapacity benefit If a Member ceases to be in Service by reason of being Totally and Permanently Incapacitated then the Trustee shall pay a Benefit to or in respect of the Member equal to the Insured Disability Benefit of the Member received by the Trustee in respect of the Member upon the Member ceasing Service by reason of being Totally and Permanently Incapacitated, less any deduction that is entitled to be made under the Deed." 6"Total and Permanent Incapacity" was defined in the trust deed to have the same meaning as in the policy. 7Mr De Smeth's claim was ultimately accepted and he was paid a lump sum of $310,000 on 6 September 2011. The sole question is whether Mr De Smeth is entitled to interest and from what date should interest run. 8The Insurance Contracts Act 1984 (Cth), s 57, so far is material for present purposes, is in the following terms: "(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 which interest 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 the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable." 9In Bankstown Football Club Limited v CIC Insurance Ltd (Supreme Court of New South Wales, Cole J, 17 December 1993, unreported), Cole J said: "In my view, section 57 is directed to a determination of the point of time at which empirically, it can be stated that it was unreasonable to decline to make a payment. That decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability. If there was liability found and the insurer to pay, then the presumption must be that the insurer would be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability. A reasonable period is to be given to the insurer to investigate and determine its position but if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to me to be the correct interpretation of sectioin 57(2), particularly in circumstances of section 57(1) of the Act, where an insurer is liable to pay to a person an amount under a contract of insurance." 10These views have been adopted and applied in a number of cases (Hams v CGU Insurance Ltd [2002] NSWSC 843; HIH Casualty & General Insurance v Insurance Australia (No 2) [2006] VSC 128; Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857; (2007) 213 FLR 174; Triffitt v Australiansuper Pty Ltd [2007] NSWSC 1167; (2007) 214 FLR 407; McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2) [2009] VSC 49; Nino v MLC Ltd [2009] NSWSC 400; Garage Fashions Pty Ltd v Insurance Australia Ltd [2011] NSWSC 968; Summers v The National Mutual Life Association of Australasia (No 2) [2012] TASSC 9; Aldridge v Hannover Life Re of Australasia Ltd (District Court of New South Wales, Kearns J, 9 August 2012, unreported)). 11In the appeal from the judgment of Cole J in CIC Insurance Ltd v Bankstown Football Club Ltd [1994] NSWCA 359, Kirby P was prepared to agree with Priestley JA who saw no error in the approach of Cole J. Powell JA took a different point of view. 12The Court of Appeal reconvened before the entry of orders in CIC Insurance Ltd v Bankstown Football Club Ltd (No 2) [1995] NSWCA 76 in which Priestley JA withdrew such of his reasons as conflicted with those of Kirby P. The President had said that the insurer's purported cancellation of the contract of insurance was unjustified. Cole J had found it to be so. His Honour endorsed what was said in CCH, Australian and New Zealand Insurance Reporter at par 23-400: "an examination of [the] cases suggests that the most that probably can be said is that interest is generally awarded either from when the insurer first emphatically denied liability or disputed quantum, or from when, in the normal course of events, the claim would have been paid if liability or quantum had not been disputed." 13In the High Court, CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384 at 410 it was noted that there was no challenge to the construction placed upon the Insurance Contracts Act (Cth), s 57 by Cole J. 14In my view the construction adopted by Cole J stands and I adopt it in this case at first instance. 15It was submitted on behalf of Mr De Smeth that he had to establish that he left the firefighting service by reason of his then being totally and permanently incapacitated. It was submitted that he needed to establish that he was totally and permanently incapacitated on 21 February 2009 when he had his accident. It was further submitted that since the trustee had accepted liability, it must be taken to have accepted that Mr De Smeth was totally and permanently incapacitated on the date of his accident. 16If this is the correct interpretation of the trust deed it means that the liability of the trustee for total and permanent incapacity is limited to firefighters who become totally and permanently incapacitated at the moment of suffering an injury and the trustee bears no liability with respect to a firefighter who becomes totally and permanently incapacitated after an accident when the injury has stabilised. 17The construction for which counsel contends of cl 16.2 of the trust deed set out above does not accord with commercial reality. A medical practitioner of the opinion that a firefighter's injuries have not stabilised will not certify total and permanent incapacity until the injuries have stabilised or have reached the point where it is unlikely that there will be any improvement and the firefighter is declared to be totally and permanently incapacitated by the medical practitioner. 18A restriction of the trustee's liability to injuries causing immediate total and permanent incapacity is not apparent in other aspects of the trust deed or the policy. Clause 16.2 of the trust deed limits the liability of the trustee to pay a benefit to the "Insured Disability Benefit". That term is defined in cl 1.1 to mean a benefit or part of a benefit to be provided in respect of a member under an insurance policy upon the member becoming totally and permanently incapacitated. 19The definition does not limit the benefit to an immediate total and permanent incapacity. 20The term "Insured Benefit" is defined in cl 1.1 of the trust deed to mean an insured death benefit or insured disability benefit. Clause 14.2 limits the liability of the trustee to an amount received under the insurance policy the trustee is obliged to take out under cl 14.1. It is in the following terms: "14.2 Operation of insurance policy Any Insured Benefit shall be subject to the terms of the Insurance Policy under which it is provided and no payment shall be required to be made in respect of a Member in satisfaction of any Insured Benefit of any amount greater than the amount received by the Trustee under the Insurance Policy less any deductions for Taxes the Trustee is entitled to make under this Deed." 21The policy does not limit total and permanent incapacity benefits to incapacity arising immediately upon injury. The policy provides as follows: "2.3 Insured Events We will pay a benefit under this Policy when an Insured Person dies or becomes Totally and Permanently Incapacitated." 22The definition of "Total and Permanent Incapacity" set out above does not limit that condition to one arising immediately upon the sustaining of ill-health. 23In my view, liability under the trust deed is limited to receipts from the insurer under the policy and those receipts are not limited to injury or ill-health causing immediate total and permanent incapacity. 24I reject the argument that the trustee by accepting liability is deemed to have accepted that Mr De Smeth was totally and permanently incapacitated when he left the firefighting service upon sustaining his injury on 21 February 2009. 25Mr De Smeth made a claim for total and permanent incapacity on 29 October 2009. The New South Wales Fire Brigades medical officer, Dr Tania Rogers, made a report dated 23 October 2009 in which she said: "I agree with Dr Nott that while Mr De Smeth has not reached maximal medical improvement, he is highly unlikely to improve to the point where he is able to perform fire fighting duties with a reasonable margin of safety in the foreseeable future." 26She reported that the medical case review committee recommended that Mr De Smeth was permanently unfit for his substantive position and that no suitable duties were available. 27Mr De Smeth's general practitioner, Dr John Brown, said in a report of 24 August 2009, that because of his continuing disability related to the poor healing in his tibial fracture, Mr De Smeth remained significantly disabled. Dr Brown believed that Dr Nott was going to remove the broken fixation screw from Mr De Smeth's leg, which would reduce his pain so his mobility should improve. 28Because of the non-union of his fracture, Dr Brown was unable to provide a long-term prognosis for Mr De Smeth. His opinion was that Mr De Smeth would never be employed in his normal occupation due to incapacity. 29Dr Matthew Nott, who was Mr De Smeth's treating orthopaedic surgeon, in a report of 6 August 2009 said that Mr De Smeth was suffering from pain related to his right tibial fracture. He had some pain related to a permanent proximal locking screw, which was broken and had developed an acute medical compartment osteoarthritis of the right knee. He was walking with a limp. He complained of constant pain for which he took narcotic analgesic medication. He had been unable to work due to his pain. 30Dr Nott said that he was totally disabled from working with the Fire Brigade. He owned a nursery and was able to perform light duties as a nurseryman. Dr Nott said that it would be two years before Mr De Smeth had reach maximal medical improvement. He felt that Mr De Smeth would not be able to return to his pre-injury employment at any stage in the future but he did feel that he would be able to continue working as a nurseryman as long as he could restrict the amount of heavy lifting that he does. 31By letter dated 18 November 2009, Suncorp's claims assessment officer, Rebecca Meiklejohn, advised the trustee as follows: "Whilst member does own a Nursery with his wife due to the restrictions that have been put in place he is limited in what he is able to assist with and they have therefore employed people to assist as he cannot. [Client's] previous work history consists of occupations which require prolonged standing, lifting and carrying due to his condition and the restrictions that have been put in place he is no longer able to do this type of work. In light of the medical information on file and type of occupations performed by Mr De Smeth in the past, it is unreasonable to expect that he will return to any occupation within his education, training and experience. Based on the evidence on file we have assessed this claim as an 'Off Duty' Total and Permanent Incapacity." 32Chris Matthews is employed by ASAS (NSW) Pty Ltd, which provides secretariat and other services to the trustee. He carries out the role of the superannuation fund secretary. 33Mr Matthews did not agree with Ms Meiklejohn's assessment. He did not think that Dr Tania Rogers' report went far enough to meet the definition of total and permanent incapacity under the policy. His assessment of the submissions was that Mr De Smeth owned and ran a nursery with his wife and he could with some restrictions perform some duties of a nurseryman. 34In his employee's statement of 4 September 2009, in answer to the question, "Please list any jobs you think you might be able to do in the future", Mr De Smeth said "resume work within our nursery - with restrictions to weight bearing". 35In rejecting Ms Meiklejohn's assessment, Mr Matthews noted that Mr De Smeth's condition was not likely to stabilise for over two years. He did not think there was sufficient medical evidence available to satisfy the Australian Taxation Office for the benefit to receive concessional treatment. He was of the view that further medical reports should be obtained. The trustee accepted this advice. It resolved as follows: "That the Fund writes to Mr De Smeth to advise that the initial assessment of his claim is that he does not meet the TPI definition due to the possible continuation of his primary employment and the lack of medical evidence relating to TPI. The letter is to offer Mr De Smeth 30 days to provide further information to support his claim." 36Mr Matthews caused his assistant, Shona Robinson, to write to Mr De Smeth on 15 December 2009. The letter contained the following: "An initial view has been formed based on the information available that your injury does not meet the definition of a Total and Permanent Incapacity. It is noted that there was no medical opinion stating that you were totally and permanently incapacitated. Dr Matthew Nott provided an opinion that you could continue working in your primary occupation as a nurseryman as long as you could restrict the amount of heavy lifting that you do. Dr John Brown also provided an opinion that you could work provided there was no prolonged standing, lifting or carrying." 37Mr De Smeth, by a further amendment to his statement of claim, sought interest from 15 December 2009 to 6 September 2011. 38I do not think that the letter of 15 December 2009 marks a time at which it could be said that it was unreasonable of Suncorp to decline to make payment to Mr De Smeth under the policy. I do not think that liability of Suncorp under the policy had been established at this time. Mr Matthews' rejection of Ms Meiklejohn's assessment was not unreasonable. Because of the inability of Dr Brown and Dr Nott to give a long term forecast of Mr De Smeth's injuries, the obtaining of further medical reports was appropriate. 39I reject Mr De Smeth's claim to interest as from 15 December 2009. 40The letter of 15 December 2009 invited Mr De Smeth to provide further information in support of his claim. Further information was provided on 2 September 2010. 41In a report of 12 November 2009, Dr Nott said the fracture was starting to consolidate which was very reassuring. He said they thought they were heading towards a union that has been very slow. He had a lot of ankle pain when seen which the doctor thought was coming from his distal locking screws. He planned to remove them. 42On 22 December 2009, Roslyn Marion, a physical therapist, conducted a workplace assessment with Mr De Smeth. She reported: "He is scheduled for a removal of surgical screws on 18.01.10. The surgeon has advised him that he will then be required to wait approximately 6 months to have clarification of need for further surgery to correct the problem with the knee. It will not be possible to ascertain Mr De Smeth's potential to return to pre injury status until after these medical interventions." 43On 25 February 2010, Dr Nott said: "Onno's ankle pain has improved after removing his distal locking screws right tibia, and he is now left with pain around the fracture site. It is twelve months since injury and x-rays show a delayed union. I will review Onno again in six months with a check x-ray and if he fails to heal, will offer an exchange rodding." 44On 9 March 2010, Dr Brown expressed an opinion in terms of the definition of total and permanent incapacity. Dr Brown said: "Mr De Smeth is unlikely, by reason of ill-health (whether physical or mental) to ever again engage in gainful employment for which he is reasonably qualified by education, training or experience." 45Dr Brown also said that Mr De Smeth had developed a wrist injury. 46The trustee's reaction to the 2 September 2010 material was to seek clarification from Mr De Smeth and Suncorp asked Dr Nott for an updated report. 47It was not unreasonable to so react. Dr Nott was to review Mr De Smeth in August 2010. I do not regard a reasonable time after 2 September 2010 as the time at which Suncorp's liability to pay Mr De Smeth under the policy arose. 48On 22 December 2010, Mr De Smeth's solicitor sent the trustee a report by Dr Nott dated 6 August 2009 and a further report of 5 August 2010. The latter report stated: "Onno's tibia looks to be heading towards a delayed union 18 months after fracture. X-rays show some improvement in his callus. I will review him again in four months time with a check x-ray to consider nail removal." 49Again, it was reasonable to await Dr Nott's review in December 2010. 50On 2 February 2011, Mr De Smeth's solicitor supplied the trustee with a report by Dr Patrick dated 12 October 2010 and a report from Dr Nott dated 2 December 2010. 51Dr Patrick formed the view that the plaintiff was totally and permanently incapacitated for work. This was based upon an examination of Mr De Smeth on 16 June 2010. 52Dr Nott's report indicated continuing improvement: "Onno's tibial fracture is finally starting to consolidate almost two years after his distal third tibial fracture. I now plan to extract his tibial nail at the Bega Valley Private Hospital in the New Year. We can then start thinking about what to do with his medical compartment osteoarthritis of his right knee. The question is whether we consider high tibial osteotomy or medial unicompartment knee replacement for his moderate medial compartment osteoarthritis." 53By letter dated 12 January 2011, Dr Nott provided Suncorp with the report it had requested in the previous September. Dr Nott said that Mr De Smeth's fracture was healing and was progressing well towards solid bony union. He planned to remove the right tibial nail in February and said his condition would have stabilised about three months after extraction and that Mr De Smeth's leg pain might improve after the nail extraction. He would still be left with a medial compartment osteoarthritis of his right knee, which would require further surgery but that such surgery would be delayed as long as possible because he was very young for that surgery. 54Approximately three months after the tibial nail extraction, Suncorp asked Dr Nott on 12 May 2011 to provide a further report. That report, dated 30 June 2011, was received by Suncorp on 7 July 2011. For the first time it contained Dr Nott's express opinion that Mr De Smeth's injuries had stabilised and he was not expecting any significant improvement. 55On 11 July 2011, Suncorp recommended that the trustee accept the claim. The claims subcommittee admitted the claim on 18 July 2011. 56Mr De Smeth commenced these proceedings on 24 June 2011. 57It was not unreasonable for Suncorp to wait the three months mentioned by Dr Nott in his report dated 12 January 2011. 58In my view, Suncorp and the trustee had a reasonable time to consider Dr Nott's report dated 30 June 2011 and liability was properly to be admitted after that time. 59Suncorp and the trustee acted with dispatch upon receipt of the letter on 7 July 2011 in admitting the claim on 18 July 2011. It is from that date until payment on 6 September 2011 that interest should run.