Diosdado Sayseng v Kellogg Superannuation Pty Ltd & Anor

CATCHWORDS : INTEREST - s 57 Insurance Contracts Act 1984 (Cth) - date from which it was unreasonable for insurer to have withheld payment on claim - discretionary judgment

LEGISLATION CITED : Insurance Contracts Act 1984 (Cth) s 57

Bankstown Football Club v CIC Insurance Limited [Unreported, NSWSC, 17 December 1993] Edwards v. The Hunter Valley Co-op Dairy Co. Ltd & Anor [1992] 7 ANZ Ins Cas 61-113 CASES CITED : HIH Casualty & General Insurance Limited v Insurance Australia (No. 2) [2006] VSC 128 Max Hams & Anor v CGU Insurance Limited [2002] NSWSC 843 NRMA Insurance Ltd v Tatt (1989) 5 ANZ Ins Cas 60-902 Sayseng v Kellogg Superannuation Pty Ltd & Anor [2003] NSWSC 945

Diosdado Sayseng - plaintiff PARTIES : Kellogg Superannuation Pty Ltd - first defendant Hannover Life re of Australia - second defendant

B W Rayment QC/G B Beauchamp/M Gollen - plaintiff COUNSEL : Ms V Heath - first defendant D Davies SC - second defendant

Firths the Compensation Lawyers - plaintiff SOLICITORS : Minter Ellison - first defendant Deacons - second defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5048/02 Diosdado Sayseng v Kellogg Superannuation Pty Ltd & Anor JUDGMENT 1 His Honour: In the judgment delivered 8 June 2007 I held that, continuously since 11 December 1997, the plaintiff had been in a condition of total and permanent disablement within the meaning of the policy, and that the insurer was liable to pay the trustee agreed benefits in the amount of $147,055.00, together with interest. The amount was paid to the trustee on 29 June 2007. 2 The issue for determination is the plaintiff's claim to interest under s 57 Insurance Contracts Act 1984 (Cth) (the Act). Relevantly, the section provides: "57 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 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 …" 3 In NRMA Insurance Ltd v Tatt (1989) 5 ANZ Ins Cas 60-902 McHugh, JA (with whom Hope, Samuels JJA agreed) said (p 75, 752) "… that sec. 57 states completely, exhaustively and conclusively the law on the subject of interest payable for periods during which a person has been kept out of insurance monies to which he is entitled". 4 The plaintiff submitted that the court should adopt the approach taken by Cole, J in Bankstown Football Club v CIC Insurance Limited [Unreported, NSWSC, 17 December 1993] in which he said: "In my view s 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. The 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 ought 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 be the correct interpretation of s 57(2), particularly in circumstances of s 57(1) of the Act, where an insurer is liable to pay a person an amount under a contract of insurance." 5 This decision was followed by Einstein, J in Max Hams & Anor v CGU Insurance Limited [2002] NSWSC 843 (para 27) who pointed out (para 25) that: "… The critical issue is what was the date as from which it may be seen in the circumstances of the particular proceedings heard before the Court to have been unreasonable for the insurer to have withheld payment of the amount." 6 The decision was also followed by Bongiorno, J in HIH Casualty & General Insurance Limited v Insurance Australia (No. 2) [2006] VSC 128 (paras 9, 10). His Honour noted (para 8) that Cole, J rejected a submission that the question of the date from which it became unreasonable for an insurer to withhold payment of a claim depends upon any concept of a bona fide dispute. He continued: "9 … Once the court has rejected the insurer's defence to a policyholder's claim, that defence becomes irrelevant as does the fact that the insurer had a bona fide belief in its efficacy. To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder's claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.

10 Ormiston J in V.L. Credits v Switzerland General Insurance assessed interest on the same principle; that is to say he allowed the insurer a reasonable time to investigate the claim and determined the date from which interest ran as being at the end of that time. His Honour appears to have selected a period of three months in a case involving arson as being a reasonable period during which the insurer was entitled to investigate the claim. He awarded interest after that period. His judgment does not suggest that that assessment was made on the basis of evidence as to what the insurer knew and what it did. Rather, it appears to have been selected by his Honour as being a reasonable period taking into account the type of case and the probable issues which had to be investigated. " 7 In my opinion it should now be accepted that the correct approach to be taken by the court on this question is that taken by Cole, J in Bankstown Football Club. In my assessment, the cases to which I have referred establish that the question of reasonableness is to be judged by reference to the true position in respect of the claim with allowance to be made for the insurer to have a reasonable period of time within which to investigate the claim and to consider its position. The discretionary determination is to be made having regard to the particular circumstances of the case, including the probable issues which require investigation. Under the Act the court is not required to evaluate and pronounce upon the opinion or decision-making process of the insurer. It is not relevant that the insurer acted bona fide in denying the claim, or when the judgment of the court established the insurer's liability to pay it. In short, the award will be calculated on the basis of what the court finds is a reasonable time for completion of the insurer's investigation of the claim. Put another way, in my opinion, the insurer is not automatically liable to pay interest from the day on which it became liable to pay to a person an amount under a contract of insurance. Under s 57(2) liability to pay interest is to be calculated with regard to the day on which it was unreasonable for the insurer to withhold payment of the amount after it had become liable to pay it in response to a claim. 8 Entitlement to insurance under the policy in this case is expressed to depend on facts of which the opinion of the insurer is an element. In Sayseng v Kellogg Superannuation Pty Ltd & Anor [2003] NSWSC 945 Bryson, J (para 81) adopted statements in Edwards v. The Hunter Valley Co-op Dairy Co. Ltd & Anor [1992] 7 ANZ Ins Cas 61-113 (McLelland J) pp 77,536 and 77,537, of which the following are relevant to the present question: "Since the commercial purpose of the policy was, relevantly, to provide insurance against the risk of total and permanent disablement, and since the policy was expressed in terms requiring the formation by Zurich of a particular opinion as a condition of Zurich's own liability, there was clearly an implied obligation on Zurich to consider and determine whether it should form that opinion. That involved a consideration and determination of the correct question (see James Noel Eric Butcher v Port (1985) 1 NZLR 491 at 496, 504, and cf Wilson v Metro Goldwyn Mayer 18 NSWLR 730 at 734) … However in the field of insurance, it is well established that where under a contract of insurance an element of the insurer's liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining that matter …" 9 The plaintiff submitted that within three months after notification of the claim by William M Mercer Pty Ltd on 4 November 1998, the insurer ought to have completed its investigation. He put that in the circumstances interest should run from 21 March 1999, being the date on which the policy's definition of total and permanent disablement was actually satisfied. In the alternative, he submitted that interest should run from 17 September 1999, being the date three months after the insurer received from William M Mercer on 17 June 1999 the member's statement and medical report. 10 The trustee submitted that the relevant day was on or about 27 April 2000, being the date of the letter in which the insurer declined the claim. 11 Reliance was placed upon Bryson, J's findings (Sayseng paras 93, 94, 95) that, in reaching an opinion, the insurer was obliged to afford the plaintiff the opportunity to respond to the adverse reports of Dr Funnell of 12 January 2000 and of Ms Gosling shortly after 14 March 2000. It was put that had the insurer done so the plaintiff would have provided information which would have enabled it to resolve the conflict on the evidence before it, and to proceed to decide to pay the claim. It was put that the true position was reasonably discoverable by 27 April 2000, and that it was unreasonable to withhold payment after that date. 12 For the insurer it was submitted that interest should not run until after 30 November 2006, being the date the totality of the evidence relevant to the issue of total and permanent disablement concluded before me. It was put that as the insurer did not have available to it much of the evidence adduced at the hearing (including the oral evidence of the plaintiff, his wife, his daughter, medical practitioners and other experts), it was not unreasonable on the information it did have to have declined the claim on 27 April 2000, and to have adhered to that decision thereafter. It was argued that, consistently with Bryson, J's finding that the trustee's decision of 9 April 2001 to decline payment was reasonable, it was also reasonable for the insurer to have held the opinion that the plaintiff was not totally and permanently disabled within the meaning of the policy as each decision was based on substantially similar evidence. In this respect it was put that the finding that its decision was vitiated on the basis that the insurer had failed in its duty of good faith and fair dealing should not support a finding on the issue of interest that it was unreasonable for it to have withheld payment until 30 November 2006. 13 Alternatively, the insurer submitted that it should not pay interest from a date earlier than 27 April 2000. It relied, inter alia, on the facts that it was not until 1 October 1999 that the plaintiff provided the requested details and proof of age and identity, following which arrangements were made for Dr Funnell and Ms Gosling to examine the plaintiff. Dr Funnell reported on 12 January 2000, and Ms Gosling shortly after her examination on 14 March 2000. The last mentioned evidence, together with that earlier obtained, was considered and founded the opinion expressed on 27 April 2000. It was put that, in the circumstance, it was not unreasonable for the insurer to withhold payment until then. Determination 14 Under the policy the insurer became liable to pay the claim for the agreed benefits once the plaintiff's condition became one of total and permanent disablement within the meaning of the policy. I held that the definition was fulfilled on 21 March 1999, being the date of expiry of the initial period of six consecutive months during which the plaintiff had been absent from work through injury. 15 By letter of 4 November 1998 William M Mercer notified the insurer of the claim. The insurer replied by letter of 6 November 1998 with its requirements for investigation and assessment. 16 With its letter of 17 June 1999 William M Mercer sent to the insurer the plaintiff's statement with an additional sheet of information and a statement by Dr Augusto Tablante. Their contents were summarised by Bryson, J (Sayseng paras 23, 24) thus: "23. … In the Member's Statement, which was a standard form used by Hannover, Mr Sayseng said among many other things that the nature of his illness was "L4/5 Disc Degeneration/Spinal Canal Stenonis". He said that his job title was machine operator, that he was unfit for any work, that he was educated to first year tertiary level and had no other qualifications, training or skills. He was asked at question 19 "Please list any jobs you think you may be able to do in the future" and he answered: "Apart from manual/process work - none." 24 He enclosed additional pages listing doctors whom he had seen. These were Dr Vienna Esplago, Dr Agusto Tablante, Dr Peter Giblin, Dr Daryl Salmon, Dr Tan Letian and Dr William H. Wolfenden, and also Ms Linda Barca, Physiotherapist. Question 22 asked him to add any other comments and he said: QUESTION 22

I am permanently incapacitated to resume pre-injury work like the ones I was doing at Kelloggs. I am 50 years old, and at my age and without the necessary qualification and training to do other jobs except manual and process works, it is impossible for me to find employment. I opted to resign because I don't like my condition to get worse. I have tried looking for a job since I left the company, but as soon as employers and employment agencies heard of my injury, they never called me back. I am currently taking pain killer tablets which are bad for the stomach and may cause ulcer, and undergoing pain management treatment with Dr. Daryl Salmon. I am also currently trying acupuncture treatment to ease the pain. There are also times that I am experiencing loss of libido, and my interest in sex has disappeared. Apart from these, my self-esteem is at its very low because as a primary breadwinner, I have a family to take care of. Currently, it is my wife who is now supporting me. Training is also impossible because of the problem of being able to sit or stand for long periods of time. I am spending my days alternatively sitting, standing and lying down to ease my pain. Attached also is a copy of Dr. W. H Wolfenden's report stating that he believe I would not be able to find employment anywhere, and that I will always have a bad back." 17 Also included was Dr Wolfenden's report of 1 April 1999 in which he said the plaintiff was totally unfit for work, and that he thought he would be unable to find work anywhere, that the prognosis was poor, and he would always have a bad back. (I note that the plaintiff's date of birth, 22 December 1948, was stated in each of the letter of 4 November 1998, the member's statement, and Dr Wolfenden's report.) 18 With its letter of 9 September 1999 William M Mercer sent to the insurer the employer's statement and other documents. It included a statement to the effect that the plaintiff's job was not still open and that the employer did not have any other jobs appropriate to his level of skill and experience, and explained his not having been offered alternative jobs by his applying for voluntary redundancy. 19 The evidence establishes that at least by 17 June 1999 the insurer was in possession of a substantial body of information concerning the claim which must have advanced its investigation of it. Of course, on 21 March 1999 the six month period had expired and the first limb of the definition satisfied, a situation to which the insurer had been alerted in the letter of 4 November 1998 by the information that the plaintiff had ceased active service on 21 September 1998. 20 The employer's statement was received by the insurer some ten months after it was requested. It is reasonable to expect that if it was of significance to the insurer, assuming due diligence, it would have been called for earlier. Nevertheless, having regard to the matter overall, in my opinion it would not be unreasonable for the insurer to have waited for the employer's statement before paying the claim. However, once the statement was received it is difficult to see that it was reasonable to continue withholding payment for more than a short time. 21 Furthermore, it was always open to the insurer to have initiated its own enquiries after notification of the claim and pending receipt of responses from the plaintiff and the trustee. For example, upon receipt of the member's statement and accompanying information it was well-placed to retain medical practitioners to examine the plaintiff and otherwise obtain further information to enable it to assess the claim. Certainly, in my opinion, by the time the employer's statement had been received, the insurer had had ample time within which to thoroughly investigate and assess the claim. 22 The discretion under s 57(2) of the Act is to be exercised with regard to the principles earlier referred to. Taking into account the nature of the claim which the insurer was obliged to consider and the issues for investigation under it, in my opinion, the day from which it was unreasonable for the insurer to have withheld payment of the claim was 17 September 1999. 23 It follows that I reject the submissions of the insurer and the trustee as to the relevant day from which interest should run. Acceptance of their submissions would have resulted in fixing a day which allowed the insurer a period of time which was unreasonably lengthy. In addition, as I understood it, acceptance of the insurer's principal submission would involve the court in an evaluation of the reasonableness and bona fides of the position adopted by it. The cases make plain that this is a task which should not be undertaken. 24 It has been agreed that upon determination of the relevant day the parties will calculate the amount of interest payable by the insurer. I propose to order the insurer to pay the plaintiff's costs of the hearing of the interest issue, and that the trustee bear its own costs of this hearing. 25 I direct the plaintiff to bring in short minutes of orders in accordance with these reasons by 16 August 2007. **********

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