MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd

The treaty

1. The treaty was executed by senior officers of Citicorp Life Insurance Ltd as cedant and RGA as reinsurer on 23 June 2003, although it was expressed to have effect from 5 February 2003. Subsequently, the cedant Citicorp changed its name to MetLife, and it will be convenient in what follows to refer to that company by its current name, even when referring to earlier events. The treaty bore on its front page an "RGA Treaty Number", namely, "AU-CO-A-LS/IP-G-2003".

Structure

1. The treaty comprises four recitals, five parts (Parts A to E), six schedules (Schedule A-F), and five appendices (Appendices A-E). One of the recitals is: "D. The parties wish in this Treaty to establish an arrangement for the Cedant to reinsure liabilities under Policies with RGA Australia and to set out the terms of that Reinsurance".
2. Parts A, B, C, D and E are headed "Agreement", "Automatic Terms", "Facultative Terms", "Reinsurance" and "General".
3. Part A commences with a clause stating that "This Part A sets out the arrangement for RGA Australia to reinsure the Cedant's liability under Policies" (emphasis added); the language of "arrangement" replicates that in recital D. Clause 4.1 is a confirmation by MetLife that it had no other reinsurance on which it would be entitled to claim in respect of any liability reinsured under the reinsurance. That clause is to be read with cl 4.2, which was said to be of some importance, and which has given rise to a minor dispute: "The Cedant must not reinsure a Policy with any other reinsurer without RGA Australia's prior written consent."
4. Clause 5.2 obliges MetLife to "offer each Policy to RGA … for reinsurance" and RGA is obliged to accept it, provided the policy is "within the Automatic Limits set out in Schedule B".
5. Part B of the treaty contains "Automatic terms" - the terms on which RGA would automatically reinsure MetLife in respect of Appendix A Policies. Part C contains "Facultative terms", being the terms on which MetLife and RGA might agree reinsurance under policies other than those reinsured in Part B.
6. The minor dispute concerning cl 4.2 came about because one of the definitions in the general provisions found in Part E is that "Policies means the contracts of group life insurance described in Schedule A" and that schedule states necessary and sufficient conditions for a contract of group life insurance to be a Policy, one of which is that it be "on the terms of the Policy [sic] document attached as Appendix A" (ie, automatic reinsurance policies). However, elsewhere in the treaty, the term "Policy" is capitalised in circumstances which could not satisfy the definition (for example, cll 7 and 8.1, as well as in Appendix A itself). MetLife submitted and RGA denied that "Policy" in cl 4.2 must apply both to the automatic terms and the facultative terms policies. The point of MetLife's submission was that if it were tied to RGA in respect of facultative reinsurance, then all the more unlikely and uncommercial was the construction determined by the primary judge. It will not be necessary to decide this point.
7. Part D makes provisions for the terms of reinsurance, whether automatic or facultative, and Part E contains general terms, including a list of definitions of capitalised words which, it was common ground, were less than perfectly applied throughout the treaty.

Relevant clauses

1. The first clause within Part C, cl 7, makes provision for effecting facultative reinsurance: "7. APPLICATION This Part C sets out the arrangement for: (a) the cedant to apply; (b) RGA Australia to make offers; and (c) the Cedant to notify any acceptance of such offers, in relation to the reinsurance of the Cedant's liability under Policies other than those reinsured in Part B."
2. Clause 8 requires MetLife to provide a request for reinsurance "in any form agreed between the parties", all information supplied by the Policyholder to MetLife in relation to the Policy, and all information in MetLife's possession or control in relation to the Policy and Policy Holder. Clause 9 is headed "Offers by RGA Australia", but rather than making any provision about the making of an offer, it merely states: "The parties agree that RGA Australia is entitled to rely on the documents and information supplied under Article 8 in relation to its decision whether or not to make an offer to [MetLife] under this Article."
3. Clause 10.1 presupposes that RGA has made an offer. The clause authorises MetLife to communicate its acceptance of RGA's offer in any manner agreed by the parties. Clause 10.2 provides: "Once the Cedant communicates its acceptance of RGA Australia's offer to RGA Australia under Part C there is formed a facultative reinsurance (Facultative Reinsurance) between the parties the terms of which are in the Schedules and Parts C and D of this Treaty unless agreed otherwise by the parties."
4. It will be seen that the provisions in this Part of the treaty mean that upon acceptance by MetLife of an offer by RGA, a contract of facultative reinsurance is, then and there, formed between cedant and reinsurer. The terms of that contract are to be found elsewhere in the treaty except to the extent the parties have agreed otherwise.
5. Part D comprises cll 11-19. Clause 11 states that Part D applies to each Automatic Reinsurance entered into in accordance with Part B and each Facultative Reinsurance entered into in accordance with Part C.
6. Clause 12.1 was relied on by MetLife: "12.1 Each Reinsurance is on the basis of the terms of the Reinsured Policy. Any variation to a Reinsured Policy must be reinsured separately."
7. The term "Reinsured Policy" is defined in cl 34.4 to mean "a Policy which is reinsured with RGA Australia subject to the terms of this Treaty". It follows that "Reinsured Policies" include both policies that are the subject of Part B automatic reinsurance and policies that are the subject of Part C facultative reinsurance.
8. Clause 13 contains some unusual features and was relied on by MetLife. It is best to reproduce it in full: "13. REINSURED AMOUNTS General 13.1 RGA Australia must indemnify the Cedant by the payment, subject to the terms of this Treaty, of the Reinsured Amount. The Reinsured Amount is: (a) (i) the Claim Amount; and (ii) if and only if RGA Australia is liable to pay the Claim Amount, or where the Cedant incurs costs and expenses dealing with a claim under the Reinsured Policy, the Claim Costs. If and only if: (b) The legal contractual liability of the Cedant under a Reinsured Policy to pay a Policy holder has been ascertained by: (i) the verdict or judgment of a Court or other binding legal tribunal; or (ii) an agreement to settle a claim by a Policyholder under a Reinsured Policy; and (c) there is no unremedied breach by the Cedant of the Reinsurance. 13.2 The Reinsured Amount equals the Break Amount only, if and only if the Cedant wishes to defend a claim by a Policyholder but RGA Australia notifies the Cedant that it does not agree to the claim being defended and there is no unremedied breach by the Cedant of the Reinsurance. Exclusions 13.3 RGA Australia has no liability whatsoever for any amount payable by the Cedant to any Policyholder or any other person for any act, omission or conduct of the Cedant which: (a) is in breach of any statute, other than the Insurance Contracts Act (Cth); or (b) involves punitive, exemplary or other non-compensatory damages, to the extent that they exceed or do not represent compensation for the Reinsured Amount, and involves damages that do not represent compensation in respect of benefits under the Reinsured Policy. 13.4 The Reinsurance does not entitle the Cedant to share in any distribution by RGA Australia of profits or surplus, subject to Article 16. The amount of any benefit to which the Cedant is entitled under this Reinsurance is set out in this Treaty.
9. MetLife relied upon the subheading above cl 13.3, "Exclusions", in contradistinction with anything to be seen in Addendum Number Four; I shall return to this below. It is convenient to add the following observations. First, notwithstanding the repeated use of "if and only if" in cll 13.1 and 13.2, the exclusions in cll 13.3 and 13.4 purport to state other occasions when RGA does not have to indemnify MetLife; seemingly, cll 13.1 and 13.2 are not necessary and sufficient conditions. Secondly, it seems that cll 13.1 and 13.2 themselves provide different definitions of the Reinsured Amount, notwithstanding (once again) the use of "if and only if". Thirdly, the division of cl 13.1 into two sentences seems erroneous. I do not wish to suggest that there is necessarily anything unclear about the legal meaning of these clauses, something which does not arise in any event on this appeal. I observe only that the drafting is less than ideal and indeed, a little clumsy.
10. Clauses 14 and 16.1 are important because they refer to Schedule D, into which the terms of Addendum Number Four were inserted. Clause 14 provides that MetLife must pay RGA the premium calculated in accordance with Schedule D, and cl 16.1 provides that RGA "must pay expenses allowance" to MetLife in accordance with Schedule D.
11. Clause 18 deals relatively elaborately with claims. After dealing with "Procedures" and "Flawed and Defended Claims", subclauses 18.8 - 18.11 deal with "Limits". Clause 18.8 provides: "18.8 For any Sum Insured above the Claim Handling Limit defined in Schedule F, the Cedant must before accepting liability for a claim under that Reinsured Policy, obtain RGA Australia's prior approval. This Article is subject to the other terms of this Treaty."
12. Schedule F specifies relevant Claims Handling Limits as follows: "1. The Claim Handling Limits are as follows: Benefit Limit Life $500,000 TPD $250,000 Critical Illness $250,000 Income Protection $3,500 pm month"
13. By cl 2 of Schedule F, RGA was authorised to change those limits on 90 days' notice "if the claims management practice of the Cedant deteriorates below the standards acceptable to RGA".
14. Part E of the treaty contains general provisions, including an entire agreement clause (cl 31.2) confirming that "[t]he Schedules are a part of this Treaty". Clause 34.2 also states, tautologously, that "The Schedules are a part of this Treaty", and that terms specified in the Schedules have that meaning in this Treaty. Clause 34.1 states that the heading to clauses in the treaty is for convenience only and does not affect its interpretation. This interpretative clause was noted by both parties.
15. Schedule D in the form tendered was a single page headed "Automatic Reinsurance Premium Rates and Expense Allowances". It made reference to various proportions of various categories of business by reference to "the rates described in Appendix B", and further calculations based on appendices C, D and E, which it will not be necessary to summarise. Of course, Addendum Number Four added a Section B into Schedule D.

MetLife's Blue Ribbon Policy

1. By document executed in December 2005, but stated to be with effect from 1 July 2005, MetLife entered into a group life insurance policy contract with FSS Trustee Corporation (FTC). FTC was the trustee of the First State Superannuation Scheme and had liabilities to pay insured members of the New South Wales Police Force death and disability benefits under that scheme.
2. Clause 1.2 of the Blue Ribbon policy was relied on by MetLife, particularly the last paragraph. The entire clause was as follows: "1.2 Commencement of Cover - Policy Inception Eligible Members who were at work were performing Normal Duties on the Commencement Date are covered for the Benefits as Insured Members on and from the Commencement Date. Eligible members who were not at work and performing Normal Duties on the Commencement Date are cover [sic] for the Benefits as Insured Members on and from the Commencement Date unless named on a Suspense Listing provided by us to the Policyowner. An Eligible Member named on the Suspense Listing is only covered for the Benefits as an Insured Member if he/she returns to work and performs Normal Duties for a continuous period (excluding rest days and recurrent leave days) of 30 days. We may, at our absolute discretion and on such terms and conditions as we require, accept an Eligible Member who has not been accepted under this clause as an Insured Member."
3. Clause 2.1 provides that Insured Members are covered under this Policy for Death and TPD Benefits. "TPD" is defined to mean "'Total and Permanent Disablement' as defined in the First Schedule", which schedule contains the following definition: "6 TOTAL AND PERMANENT DISABLEMENT: While covered under this Policy Total and Permanent Disablement shall mean: (a) The Insured Member suffering the loss of use of two limbs or the sight of both eyes or the loss of use of one limb and the sight of one eye (where limb is defined as the whole hand or the whole foot), or (b) In the case of an Insured Member whose Normal Hours are 15 hours each week or more at the time of the Insured Event giving rise to the claim: The Insured Member having been absent from their Occupation with the Employer through injury or illness for six consecutive months and having provided proof to our satisfaction that the Insured Member has become incapacitated to such an extent as to render the Insured Member unlikely ever to engage in any gainful profession, trade or occupation for which the Insured Member is reasonably qualified by reason of education, training or experience. (c) In the case of an Insured Member whose Normal Hours are less than 15 hours each week at the time of the Insured Event giving rise to the claim: The Insured Member, because of injury or illness becomes permanently unable to perform the basic activities normally undertaken as part of everyday life. This will be evidenced by being unable to undertake any two of the activities listed below ..."
4. The amount payable under the Blue Ribbon Policy was the "Sum Insured", which was defined to mean an amount calculated by reference to Schedules 2B and 2C. The amount of the benefit depended on whether there was "On-Duty Cover" or "Off-Duty Cover". Speaking generally and simplifying the position somewhat, On-Duty Cover was a multiple of salary determined by the officer's age, up to the age of 60. Off-Duty Cover was a fixed amount of $250,000 up to the age of 60. For officers aged between 61 and 64, both On-Duty and Off-Duty Cover were fixed amounts of $200,000 (age 61), $150,000 (age 62), $100,000 (age 63) and $50,000 (age 64). The amount payable in the case of Death was the same as the amount payable in the case of Total and Permanent Disablement.

Addendum Number Four

1. The Addendum is a seven page document which provides that the treaty "shall be amended in the manner set out in this addendum and that the changes will take effect from the 1st July 2005". I shall summarise below the aspects of it which are of greatest significance for the resolution of the appeal, although the whole of the document in the form tendered is an annexure to this judgment (no summary can do complete justice to what appears from the text and layout of the document as a whole).
2. The first page of the Addendum contains a single numbered clause, namely: "1. Schedule D, Automatic Reinsurance Premium Rates and Expense Allowances - shall have the addition of Section B - Facultative Reinsurance, NSW Police Force, as outlined in the attached. All other terms and conditions remain the same as defined in the base treaty (RGA Treaty Number: AU-CIT-A-B-G-03)."
3. The first page also contained the execution clause. The document was signed by, among others, the Chief Executive Officer of MetLife and the Managing Director of RGA, on 5 November and 15 December 2006 respectively - considerably more than a year after it was expressed to come into effect.
4. The primary judge observed at [36] the discrepancy between the RGA treaty numbers, but noted that it was common ground that the addendum was an amendment to the treaty originally identified as AU-CO-A-LS/IP-G-2003. Whether one of the earlier Addenda varied the treaty number, or whether this was merely an error cannot be determined. Page 5 of the Addendum included a sentence that "Full details of premium/claim payments will continue as under article 15 and 18 of the Treaty Number AU-CO-A-LS/IP-G-2003" (those articles do indeed deal with the payments of premium and claims). Hence the same Addendum gave two different treaty numbers to the treaty to which it was an Addendum.
5. Pages 2 of the Addendum was headed: "Facultative Terms The following sections describe the special Rates, terms and conditions for the groups reinsured on a Facultative Basis. SECTION B - NSW POLICE FORCE"
6. Once again, there is a minor discrepancy between the description given to the attachment in cl 1, and the heading of the attachment itself. Once again, the discrepancy does not directly cause any difficulty in construction.

Departure from the mechanism contemplated by articles 8 and 10

1. It will also be seen that the effect of the Addendum was to insert wording into Schedule D of the Treaty. It is convenient to pause to notice the two distinct ways in which these two insurers have agreed to effect facultative reinsurance. Clauses 8 and 10 within Part C of the Treaty provide that facultative reinsurance is formed upon the acceptance by MetLife of an offer by RGA following the request for reinsurance made by MetLife. And indeed, broadly consistently with those clauses, in MetLife's Amended Commercial List Statement, MetLife alleges that it "sought reinsurance support" from RGA in responding to a proposal from FTC (para 28). RGA denies this but "says that [MetLife] sought reinsurance from [RGA]" (Commercial List Response, para 28). MetLife also alleges that by email dated 24 June 2005 RGA provided MetLife with its written offer to reinsure the risk (Commercial List Statement, para 36). RGA's Commercial List Response does not admit this, says that it will rely on the terms of the 24 June 2005 proposal for their full meaning and effect, and refers to an earlier paragraph of its response which contains the following: "... [RGA] says that: (i) [RGA] made a proposal to [MetLife] to provide reinsurance on 24 June 2005; Particulars The proposal is in writing and was included as a letter attached to an email from Gregory Goodfliesh of [RGA} to Phil Collins of Citigroup sent at 5.30pm on Friday, 24 June 2005. (ii) the terms of the proposal included the condition that "for a claim to be eligible for consideration under the reinsurance arrangement the initial event leading to or contributing to that claim must occur after the date of effect of the treaty", such date being the date of Addendum Four effective on 1 July 2005 ..." [Emphasis in original.]
2. That said, the emails referred to in the parties' Commercial List documents were not in evidence before the primary judge, and it seems to me to be at best doubtful that regard may be had to what is said of them in the documents filed in the Commercial List proceedings when determining this appeal. Neither party directed submissions to the paragraphs referred to above.
3. The only reason I mention the communications which are alleged to have taken place between insurer and reinsurer prior to 1 July 2005 is that if the process envisaged by cll 8-10 of the treaty was followed, then a contract of reinsurance was formed then and there, and its terms will be determined in the usual way by reference to text, context and purpose.
4. But that is not what MetLife and RGA have done. It is known that, 17 months after the event, a separate document "Addendum Number Four" has been brought into existence and executed. The Addendum effects an amendment of the treaty itself, by inserting words into Schedule D of the treaty.
5. That is not the mechanism contemplated by the treaty for the formation of facultative reinsurance. Of course, there is no reason why these parties might not depart from the mechanisms in their treaty, and there may be a number of sound reasons why they have done so. (One possibility floated during the hearing was to facilitate regulatory supervision.) It may also be the case that the Addendum faithfully replicates every aspect of the contract of facultative reinsurance which was formed by operation of cl 10.2 of the treaty following the offer and acceptance.
6. However, the parties have proceeded on the common footing that the questions of construction are to be resolved by reference to the Addendum, rather than to the documents which originally gave rise to the reinsurance. So be it: the Court's task is to determine the issues presented by the parties, by reference to the evidence adduced by them.
7. The course adopted by the parties carries a further consequence. The contract to be construed is not necessarily the contract which came into existence by reason of cl 10.2 of the treaty. Instead, it is the contract which came into existence by the execution of the Addendum, inserting with retrospective effect a new section into Schedule D of the Treaty. Little or nothing may ultimately turn on this. However, to the extent that the parties' submissions turn upon the relationship between Addendum and treaty, it is important if only conceptually to bear in mind that the link is not because of the operation of 10.2 bringing into existence a further contract, but because the parties have agreed to an amendment to the 2003 treaty itself.

Incomplete copy of treaty?

1. A larger matter is the name and placement of the insertion effected by the Addendum. Why the amendment was described as "SECTION B - NSW POLICE FORCE" is unexplained. So too is why it was placed within Schedule D of the treaty, which deals with the rates and expense allowances for classes of Automatic Reinsurance. The parties were unable to provide any assistance when this was raised by the Court. One possibility is that there were earlier Addenda, one of which added "Section A" to Schedule D. Another possibility is that the single page comprising Schedule D of the treaty in evidence was treated as "Section A" (although that is not how the page is styled), and "Section B" inserted by the Addendum follows those provisions.
2. The materials in evidence included Addendum 4A (effective 31 December 2008 and executed on 27 August 2010) and part of Addendum 4B (which made changes effective 1 December 2007, 1 January 2008 and 1 July 2008 and which was executed on 30 August 2010). The substantive clauses of the latter all made reference to an "Appendix A to this Addendum" which was not reproduced. Appendix A included, inter alia, the Gross Reinsurance Premium Rates.
3. The absence of Appendix A led to the following exchange: "EMMETT AJA: Was Schedule D amended in some other way, by one of the earlier addenda or something? DONALDSON: I don't believe so. EMMETT AJA: We don't have addendum 1, 2 or 3, do we? DONALDSON: No. EMMETT AJA: It just seems to be totally arbitrary, to attach the content of addendum 4 into Schedule D, call it section B, where there's no section A. LEEMING JA: My working assumption is that there is in the real contract a section A dealing with someone else, that may have been inserted by addendum number 1, 2 or 3, or 3B or 3C or something else that we just don't have. EMMETT AJA: And that may throw some light on the context. It's really very relevant to the context, as to why this is shoved at the bottom of Schedule D. DONALDSON: It does seem to be appended to a schedule that has nothing -- EMMETT AJA: Absolutely nothing to do with it. DONALDSON: -- on its face to do with appending facultative reinsurance arrangements. The treaty contemplated that there could be facultative reinsurance arrangements and that they would be appended to the treaty. The parties don't seem to have given a great deal of thought as to where and how it should be appended, but in our submission it doesn't really take the issue anywhere."
4. MetLife made no submission on the seeming absence of Section A. It will be seen that the apparent incompleteness of the parties' written contract bears upon some of their submissions on construction.

The balance of the Addendum

1. The unnumbered provisions on pages 2-5 of the Addendum fall into a number of classes. 1. Some are substantive, specifying the rights agreed between MetLife and RGA. Section B commences with a heading "Effective Date of Treaty Addendum", which is given as "1/7/05" (this is an example of a heading regard to which is necessary to give meaning to what follows). Under the heading which follows, "Reinsurance Basis", the proportionate basis of the reinsurance is described (50% of the sum insured up to $200,000, and 100% of the amount thereafter). 2. However, some of the language appears to be merely descriptive, falling short of conferring rights or obligations upon the parties. One example is the third paragraph on p 4, which is preceded by "For clarity, the understanding of the assessment process for TPD benefits is as follows", and there follows a description, upon which MetLife relied on the principal question of construction: "If an officer is unlikely to return to work, as assessed by the government entity Healthquest, the police commissioner then must make the determination whether to medically retire an officer. If the officer is medically retired, then METLIFE then assesses the officer against the TPD definition above. If the delay in a decision of medical retirement is delayed by more than six months, then METLIFE will be notified of the member having been unable to work for six consecutive months, at which time METLIFE will commence assessment of the member's eligibility for a TPD payment." 1. An intermediate category appears on pages 3 and 4. The entirety of page 3 reproduces a functionally identical (although differently expressed) summary of part of the calculation of the on-duty and off-duty death benefits enjoyed by police officers under the Blue Ribbon policy. 2. Similarly, page 4 commences with a heading "TPD Benefit" and then proceeds to describe, in different but functionally equivalent language, how the TPD Benefit is the same as the Death Benefit, and distinguishes between on-duty and off-duty. Although not headed "For clarity", the apparent sense of the clause is that it is descriptive of the rights and obligations conferred by the Blue Ribbon policy issued by MetLife.

The Initial Event Sentence in its immediate context

1. The critical words for the purposes of this appeal in their immediate context are as follows: "Policy Options: This arrangement does not include support for any options for continuation of cover or any other policy benefits, options, riders or coverages not explicitly stated above. Automatic Limits: Every NSW police officer currently on active duty from 1 July 2005 will be covered automatically, providing the following conditions are met: Any officer not at work on the effective date of the reinsurance arrangement must return to work for a continuous period of not less than 3 months to be considered for participation in the scheme. Any officer that has not been at work performing their normal duties for one month prior to the commencement date of the scheme, but are at work completing normal duties on the commencement date, must return to work for a continuous period of not less than 1 month to be considered for participation in the scheme. Claims Handling Limits: With respect to the settlement of reinsured claims of below the claims handling limit, RGA will follow METLIFE's claims settlement decisions. For amounts in excess of this RGA must pre-approve all claim payments by METLIFE. For a claim to be eligible for consideration under the reinsurance arrangement the initial event leading to or contributing to that claim must occur after the date of effect of the treaty. Benefit Sum insured Death $500,000 TPD (non mental illness related claim) $200,000 TPD (mental illness related claim)* Nil.

*All mental illness related TPD claims are to be referred to RGA for pre-approval. RGA Australia reserves the right to change the above limits subject to a 90-day notice period." [Emphasis added.]

1. The "Initial Event Sentence" is emphasised in the extract reproduced above, but not in the original Addendum. Both the principal and the subsidiary question of construction derive from the legal meaning to be given to that sentence. It was common ground that, perhaps unlike some of the other provisions in the Addendum, the Initial Event Sentence had contractual force, qualifying the legal rights and obligations of MetLife and RGA.
2. Pages 5 and 6 of the Addendum make provision for an allowance of 14.5% of gross premiums to be paid to MetLife to administer this business, for a 1 year "reinsurance rate guarantee", and various provisions for reporting and billing, for reinsurance premium rates, and records. It was common ground that although nothing was attached to page 7 of the document tendered at hearing, the "Policy Document" to which that page referred was the underlying "Blue Ribbon" policy.

The principal and subsidiary questions of construction

1. The principal question was whether, as RGA contended and the primary judge concluded, the Initial Event Sentence qualified the obligation of RGA to provide cover, or instead, as MetLife contended, it merely qualified the scope of MetLife's authority to settle a claim unilaterally, which settlement RGA was bound to follow.
2. The subsidiary question arose only if the primary question was resolved favourably to RGA. In that case, MetLife submitted that the clause referred to the event giving rise to the claim made by MetLife (in the case of a TPD claim, the injury or illness which caused the officer to cease to attend work for six months). RGA contended and the primary judge found that "the initial event leading to or contributing to that claim" looked back to the events giving rise to the death or incapacity.
3. I will deal with each point in turn. Rather than summarising the reasons of the primary judge separately, I shall make reference to them in the course of dealing with the parties' submissions.

MetLife's and RGA's submissions on the principal question

1. MetLife's principal submission was that the Initial Event Sentence was part of the Claims Handling Limits, and imposed a qualification upon the class of claims in respect of which RGA would follow the settlement decisions of MetLife. RGA in contrast sought to uphold the decision of the primary judge, that the sentence imposed an exclusion or limitation upon the cover it had granted to MetLife.
2. MetLife's submission had two main limbs. It submitted that the apparent meaning and operation of the Initial Event Sequence related to claims handling, rather than as an exclusion. Alternatively, if that were not so, MetLife submitted that the Initial Event Sentence was insufficiently clear to displace the back-to-back presumption to be applied when construing reinsurance contracts. MetLife added that if it were wrong as to that, and wrong as to the subsidiary question, as had been held by the primary judge, then "there is a drastic divergence between the cover offered by MetLife under the Blue Ribbon Policy and extent of the reinsurance provided by RGA to MetLife". The divergence came about because MetLife was not entitled to deny cover on the basis of a pre-existing condition, yet "RGA is not liable to reinsure MetLife in respect of a claim on the basis not only of a pre-existing condition but also on the basis of some pre-existing event that was a cause of the injury or illness than in turn led to the Inured member making a claim for a Death or TPD Benefit".
3. MetLife pointed to the location of the clause within provisions dealing with Claims Handling Limits. It said that "[t]he context within the contract is a primary factor in our argument, that is, the sentence appears in the middle of what is plainly a set of claims handling provisions." It observed that the sentence did not appear under the heading "Automatic Limits" where, as MetLife freely acknowledged, limitations upon cover were found. Nor did it appear in the passage under "Distribution System", which appears to deal with the coverage of the "plan". It was said that "there are much more logical places than claims handling provisions if the parties had truly intended there to be an exclusion or limitation or condition on cover". MetLife contrasted the sentence and its location in the Addendum with the conventional headings for "exclusions" in cl 13 of the treaty.
4. MetLife contended that the purpose for the provision derived from the discretion MetLife had to extend primary cover to what it described as "hard luck cases" - a police officer who missed out on the cover, say, because of suffering an incapacitating injury or illness just before 1 July 2005 and was not at work on that date, in respect of whom MetLife might, in the exercise of its absolute discretion, extend cover in accordance with the final paragraph in cl 1.2 of its policy. It was put thus: "the trustee might put pressure on Metlife, 'Please accept this one-off exception to eligibility. It's a hard luck story and for the sake of the relationship and so you don't force us into a position where we terminate and we take our work elsewhere. Please accept that police officer", and, of course, FSS, in turn, and Metlife, might be under pressure to do so from the Police Association or from the media or whomever. So there is an overriding discretion at the end of 1.2 that, in our submission, does have a particular significance for the language that is at the heart of the dispute between us."
5. MetLife relied upon the reasoning of Lord Mustill in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 384-387, saying that "a principal strand of Lord Mustill's reasoning is the location of the crucial words in the contract as a whole".
6. MetLife's submission focussed upon the word "consideration", and said that that was an apt word to use in a sentence directed to MetLife's claims handling procedures, which were summarised ("for clarity") earlier in the page. MetLife maintained that it was plainly a reference to MetLife's consideration of a claim which would otherwise bind RGA. RGA submitted that it was the same word as had been used in the immediately preceding paragraphs, where it had referred to policy limits.
7. MetLife pointed to what it submitted were the unlikely consequences of RGA's construction, for example, a police officer who dies after 1 July 2005 because of a fatal illness which had some significant cause well before 1 July 2005.
8. MetLife also pointed to "restrospectant evidence". It said that "the occurrence of a particular event now can be the basis of an inference that people would have anticipated that event in the past". It pointed to the 250 claims which, according to MetLife's Commercial List Statement, were affected by the construction issue, leading to a total claim in excess of $50 million and added that "RGA has a cross-claim trying to recover more than $11 million which it actually paid out before they stumbled upon this sentence".

Resolution of the principal question of construction

1. Contracts are to be read as a whole. Yet for better or worse, the parties asked the primary judge and this Court on appeal to ascertain a contract's legal meaning without regard to its whole. MetLife referred in terms to the High Court's reference in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] to reference being had to the "entire text of the contract", but the evidence did not permit the Court to do so.
2. That is not to say that parties may not limit the evidence to which they wish the Court to have regard in determining a question of contractual construction: see for example Fitness First Australia Pty Ltd v Fenshaw Pty Ltd (2016) 92 NSWLR 128; [2016] NSWCA 207 at [32]. In the present case, the absence of contextual evidence may be attributed to the perceived advantages in having a separate question determined, or the perceived unhelpfulness of the evidence available, or the unavailability or unwillingness of witnesses to assist, or other considerations. Likewise, there may be good reason for the parties' failure to tender the whole of their contract (the omitted portions may have absolutely no bearing on the construction of the Initial Event Sentence). Where as here the parties are sophisticated and well-represented litigants, it is not for a court to inquire into the reasons for their forensic decisions. It is for the court to resolve the issues presented by the parties on the materials made available by them.
3. I start with the words of the Initial Event Sentence. The syntax of that sentence is not in dispute. Both parties accept that its opening words, "For a claim to be eligible", impose a precondition upon something. Both parties accept that the words, "the initial event leading to or contributing to that claim must occur after the date of effect of the treaty" constitute the precondition which is imposed by the clause (the subsidiary point of construction in this appeal concerns the precise meaning of that precondition). The question is whether the precondition is upon (a) the extent of MetLife's authority to bind RGA when settling a claim, or (b) the claims to which the reinsurance applies.
4. The critical words as to which the parties are divided are "for consideration under the reinsurance arrangement", although there were also submissions made about "eligible" to which I will return.

"Consideration"

1. MetLife emphasised the word "consideration". However, that word is at best neutral on the present issue. Although "consideration" is a natural word to use to describe MetLife's claims handling processes which may lead to a settlement, it is not the word used elsewhere the Addendum to describe the processes undertaken by MetLife when handling a claim.
2. The explanation of the "assessment process" provided "for clarity" earlier on the same page uses the language of "assess" (and cognate forms of that word) four times: first in the introductory words, then to describe what a government entity does, then if an officer is medically retired, "MetLife then assesses the officer against the TPD definition", and, in the event that a decision on medical retirement is delayed, the clause concludes with a clause dealing with the delayed commencement by MetLife of "assessment of the member's eligibility for a TPD payment". The last two uses of "assesses" and "assessment" do the same work MetLife seeks to give to the word "consideration".
3. In contrast, the clauses in the "Automatic Limits" section of the page, which concededly alter the coverage of the reinsurance, use the language of "considered for participation in the scheme". That cannot be a reference to consideration by MetLife, because the subject matter is an automatic limit of the reinsurance. They support the conclusion that "consideration" is used to connote whether or not a claim is covered by the reinsurance.

"The reinsurance arrangement"

1. The word "arrangement" is the term these two parties have used, prominently and repeatedly, to describe the automatic and facultative reinsurance which they proposed to enter into. That is the sense in which the word is found in recital D and in the opening words of Part A of the treaty. The same word is also found in cl 7, where it is used to describe the way in which facultative insurance is to be put in place. It is clear that the use by these parties in this context of "arrangement" does not necessarily convey something which is less formal, or less binding, than an enforceable contract.
2. The Addendum amends the treaty by inserting a new section into one of its schedules. Where the Addendum uses the same words as the treaty it amends, a natural starting point is that those words bear the same legal meaning. However, that presumption may be displaced, and is necessarily displaced in the case of the Addendum. It is clear enough that where the words appear in the Initial Event Sentence in the Addendum, which documents a particular instance of facultative reinsurance, it cannot be referring to the process of effecting facultative reinsurance. Instead it must be a reference either to the terms of the reinsurance themselves (which is RGA's submission), or to a component of those terms (which is MetLife's submission).
3. However, the Addendum itself uses the word "arrangement" in the sense contended for by RGA, three sentences earlier, under the heading "Policy Options". The words "this arrangement" in that section are apt to refer to the same thing as the words "the reinsurance arrangement" later on the same page. It is plain from their sense that the words "this arrangement" extend to the coverage of the facultative reinsurance, rather than the claims handling limits (because the point of this sentence is to confirm that "this arrangement" does not extend to policy benefits, options, riders or coverage not stated earlier in the Addendum). This points against MetLife' construction, which gives the same words a different and narrower meaning from the meaning given to those words when they appear some ten lines later on the same page.

Textual inferences - conclusion

1. The result is that the textual considerations do not suggest that a narrow meaning should be given to "consideration under the reinsurance arrangement". MetLife's position would have been considerably stronger had the document used the language of "assessment" or words with a narrower connotation than "reinsurance arrangement". Accepting that the presumption that the same contractual words bear the same meaning is weak and readily displaced, textual considerations support, albeit far from overwhelmingly, RGA's construction. The reasoning of the primary judge at [68]-[72] was to similar effect.
2. There is another point. There is a semantic similarity between "to be considered for participation in the scheme" which twice appears in the Automatic Limits section of the Addendum, and "to be eligible for consideration under the reinsurance arrangement", which appears three sentences later. It is common ground that the former words qualify coverage; there is some force in the later words performing a similar role (as the primary judge observed at [74]-[79]). I respectfully agree with his Honour that this tends to support the construction for which RGA contends.
3. MetLife was critical of the primary judge for placing weight upon "fine linguistic distinctions". I am not persuaded that his Honour did so, although I agree with MetLife's submission insofar as it discounts the significance of a close textual analysis. Legal meaning should not turn on arguments based on semantic exactitude where it is plain that the parties have recorded their bargain in loose, ungrammatical language: Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [98]. The Addendum, and more generally, the treaty are documents which are relatively clumsily and imprecisely drafted.
4. But neither my reasoning nor the reasoning process of the primary judge (as I read it), relies on fine textual considerations, which carry scant weight in an informal contractual document as casually drafted as the Addendum. In relation to the words "consideration" and "reinsurance arrangement" his Honour and I have relied merely upon the unlikelihood that the parties intended the same words to have different meanings when they appeared on the same page of the Addendum. The use of the same words reinforces the view that the Initial Event Sentence is concerned with qualification for cover rather than the mechanics of assessing a claim. Nor do I regard the semantic resemblance between "considered for participation in the scheme" and "eligible for consideration under the reinsurance arrangement" as a textual consideration unavailable as an aide to construction of this contract.
5. That said, it may readily be acknowledged that the textual maters mentioned above are far from compelling. The difficulty MetLife's construction faces is not so much that there are powerful considerations based upon a textual examination of the Addendum. It is that MetLife's construction involves a narrow meaning being given to the contractual words "consideration under the reinsurance arrangement", and there is little by way of text to support such a reading.

Location in the Addendum

1. I turn to placement. MetLife's submission was that if the Initial Event Sentence were a condition or exclusion of liability, it should not have been placed before and after clauses directed to Claims Handling Limits. That submission has force; indeed, I think it is the strongest submission in favour of MetLife's construction. The force is heightened because the clause preceding the Initial Event Sentence and the table following it are unequivocally directed to Claims Handling Limits.
2. Against this, RGA acknowledged that the drafting was "inelegant" but maintained that the location of the Initial Event Sentence was "not irrational", insofar as it followed shortly after the "Automatic Limits" wording, and gave content to claims which were reinsured. RGA maintained its defence of the location of the sentence in oral submissions: "... the location of the provision under the heading "Claims Handling Limits," which my friend concedes isn't itself an aid to construction, isn't entirely illogical. I know I'm not pitching my case terribly highly by using the expression 'isn't entirely illogical.' The provisions under the preceding subheading of 'Automatic Limits' deal with the question of who is covered under the reinsurance, and they deal with it in a way, as my friend has conceded, which involve defining that matter, defining the range of people covered in a way different to the primary policy. So 'Automatic Limits' deals with people. 'Claims Handling Limits' or the material under it deals with claims, and it deals with three subject matters, or it produces the solution in relation to three subject matters about which the parties to this arrangement would be concerned: claims that could be settled without RGA's approval, claims that could be settled with RGA's approval, and claims which RGA wasn't going to pay at all. That isn't illogical, and it isn't buried. So we say that the authors of this document - or the circumstance that this provision in this document ended up in the location in which it's found is not surprising. It certainly doesn't present as a reason for not giving effect to its literal terms."
3. RGA was in my view correct to pitch this part of its case low. It is difficult to ascribe much logical sense in the placement of a provision which, according to RGA, limited the coverage of the reinsurance, so that it is before and after dollar amount limits of the claims which delineated when RGA would follow MetLife's settlement decisions.
4. The weakness in MetLife's submissions based on location of the sentence is more fundamental, for little seems to turn upon placement in this Addendum, or indeed in this treaty.
5. First, no sensible reason has been given for the placement of the Addendum within Schedule D of the treaty.
6. Secondly, within the "Claims Handling Limits" section of the Addendum itself, it is quite clear that the two sentences comprising the first paragraph refer to the table immediately following the Initial Event Sentence where the dollar limits are stated. Those first two sentences cannot be applied without regard being had to the table stating what those limits are. That is to say, even if MetLife's construction be preferred, there is a still a problem with placement - the Initial Event Sentence should either come immediately under the heading, or following the table, rather than separating the substantive clause from the table with which it must be read.
7. Another way of putting this is to observe that whichever party's submission be accepted, the Initial Event Sentence should not be placed where it is. In those circumstances, little weight should be given to its location. The issue is to identify the objectively manifested common intention to be imputed to the parties to the contract. Either the parties are to be taken as caring about placement, or not caring. If they did not, then scant regard can be given to where the Initial Event Sentence has been placed when determining its legal meaning. If they did, then something has gone awry, and either the Initial Event Sentence should be two sentences earlier or one sentence later in the Addendum, as MetLife submits, or else it should be three sentences earlier, as RGA submits. In those circumstances, it would be wrong to give material weight, when determining the legal meaning of the Initial Event Sentence, to its location in the Addendum.
8. It is true that, as MetLife submitted, Lord Mustill expressly placed reliance upon what he described as "the landscape of the instrument as a whole" and "the shape of the policy" in Charter Reinsurance at 384 and 387. But for the reasons already stated, those considerations have lesser weight in a document such as the Addendum.
9. MetLife also maintained a related submission, that if the Initial Event Sentence were an exclusion or limitation on cover, it should not have been "buried" where it was found in the Addendum, The submission invoked Lord Mustill's observation at 387 that: "it would to my mind be strange if a term changing so fundamentally the financial structure of the relationship were to be buried in a provision such as clause 2, concerned essentially with the measure of indemnity, rather than being given a prominent position on its own."
10. The short answer to this is that the Initial Event Sentence is not "buried". The Addendum is a short document, which only contains a handful of substantive clauses, the majority of which are found on page 4 of the document, where the sentence is located.

The absence of a subheading

1. Not much turns upon the absence of a heading "Exclusions".
2. First, MetLife expressly eschewed reliance on the headings, in light of the interpretation provision in cl 34(1)(a) of the treaty that "the heading to a clause is for convenience of reference only and does not affect its interpretation". MetLife submitted, repeatedly, that "We don't try to get more out of headings than is stated in 34.1(a)". But if legal meaning is unaffected by the presence of a heading, it is difficult to accept a submission that legal meaning should be affected by the absence of a heading.
3. Secondly, insofar as MetLife pointed to the subheading 'Exclusions' in cl 13 of the treaty, which dealt with reinsurance amounts, the submission amounts to a comparison between oranges and apples. The formal treaty is replete with Parts and schedules and an appendix, with headings and subheadings throughout. The Addendum is much more informally drafted than the treaty. It is a short document, whose clauses are not numbered. There is no sound reason to base legal reasoning upon the absence of a heading in such a document.

Purpose

1. I turn to purpose. MetLife characterised the purpose of the Initial Event Sentence as follows: "the sentence reveals a problem with the follow settlements clause in light of that open-ended discretion and means that RGA is not exposed to an unknown indeterminate liability because of what MetLife, out of the goodness of its heart or under pressure from adverse publicity, might decide to do."
2. One difficulty with this possible purpose is that the Addendum was executed some 17 months after 1 July 2005. One might think that, by then, the extent to which MetLife had been prevailed upon to exercise a discretion favourably to FSS and its police officer members might have been determined. However, against this, MetLife submitted that the Addendum was backdated to 1 July 2005, and it was quite possible that although the contractual provisions found in it were in force from that time, although only formally documented many months after the event. I agree with MetLife that nothing can safely be derived from the time the Addendum was executed.
3. But the real difficulty confronting this submission is that the purpose contemplated by MetLife is unsupported by evidence. As Allsop P said in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [20] (with the agreement of Giles JA and by reference, inter alia, to what had been said by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2010] HCA 70 at [43] as to "business commonsense" being a topic upon which minds may differ): "It may be, as here, that there is a real contest about the appropriate commercial perspective to take from the surrounding circumstances. This may be a function of contested evidence ..."
4. There is not the slightest evidence that the generosity which, perhaps counterintuitively, might be shown by MetLife in respect of "hard luck cases" had anything to do with the Initial Event Sentence.
5. MetLife's submissions based on the magnitude of the amounts claimed in the litigation face the same evidentiary obstacle. MetLife now claims in excess of $50,000,000 in proceedings commenced a decade after the Addendum took effect. However: 1. First, there is no evidence of the particular claims at all, save for what appears in schedules of the Commercial List Statement, and I am doubtful that it is permissible to have regard to those schedules for the purposes of construction in any event. 2. Secondly, let it be supposed, favourably to MetLife, that regard may be had to those schedules. Is the fact that insurer and reinsurer are now in dispute in respect of claims amounting to some millions of dollars annually significant? It is not self-evident that that is so. If the issue is one of commercial significance, one needs to know basal commercial facts like the amount of premium and the amount of insured and reinsured claims paid over those years. One would also need to know something as to the undoubted divergence in coverage between the policies of insurance and reinsurance, such as is reflected by the automatic limits in the Addendum. 3. Thirdly, let it be assumed, once again favourably to MetLife, that the amount is significant, in the context of this facultative reinsurance. The question is whether what has happened subsequently was anticipated by both parties at the time of contracting. Perhaps it was. But there is no evidence of that, and nothing so far as I can see upon which any such inference could be sustained. This may be a consequence of the way in which this dispute has come to be litigated.
6. The submission that the divergence from the underlying insurance coverage was "drastic" or "significant" is ultimately a rhetorical flourish enlisted in aid of a submission on construction relying on post-contractual events. This is not a permissible approach to construction. The submission concerning RGA "stumbling" upon a cross-claim for recovery of $11,000,000 falls into the same category. The position is as stated by Campbell JA, with whom Tobias JA agreed, in Centennial Coal Company Ltd v Xstrata Coal Pty Ltd (2009) 76 NSWLR 129; [2009] NSWCA 341 at [48]: "[A]ny use of post-contractual conduct as an aid to construction cannot undermine the fundamental principle of contractual construction whereby the document must be construed in the light of those surrounding circumstances that were known to the parties at the time the contract was entered. If subsequent conduct operates as a type of retrospectant evidence, to cast light on the surrounding circumstances known to the parties at the time the contract was entered, it may be had regard to, but otherwise it may not."
7. I do not accept MetLife's submission that regard should be had to what it says has occurred years after the contract was entered into in order to construe the contract.
8. That is not the end to the difficulties facing MetLife's reliance upon purpose. It is necessary, in any case of construction of a commercial contract, to test both competing constructions against text, context and purpose. The process was stated by the High Court in Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16]: "preference is given to a construction supplying a congruent operation to the various components of the whole".
9. More recently, Lords Neuberger and Mance have described the iterative process of "checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences": Re Sigma Finance Corp (in administrative receivership) [2009] UKSC 2; [2010] 1 All ER 571 at [12]; Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 at [28].
10. MetLife's construction is itself an unlikely one, and the unlikelihood may be seen on the face of the document. If the Initial Event Sentence confines the extent to which RGA is bound to follow MetLife's settlement decisions, then it has no application at all to mental illness claims for TPD. This is because the bottom row of the table and the asterisked words which follow it make it clear that all mental illness related TPD claims are to be referred to RGA for approval before settlement. Accordingly, on MetLife's construction, the Initial Event Sentence applies only to (a) TPD claims not involving mental illness where the amount is no more than $200,000, and (b) death claims where the amount is no more than $500,000. A TPD claim not exceeding $200,000 which does not involve mental illness is a rare bird. The evidence discloses nothing as to the prevalence of mental illness related, as opposed to non mental illness related claims, but most claims will exceed $200,000 (that is because the off-duty claim is $250,000 unless the officer is 61 or older, and in most cases the on-duty claim will exceed the off-duty claim). Yet the parties have, according to MetLife, used those criteria to delineate MetLife's authority to settle without pre-approval.
11. RGA submitted that there was "nothing" for RGA to scrutinise where MetLife proposed to pay a death claim. It was common ground that RGA insisted upon a right to scrutinise every TPD claim involving mental illness. It then submitted: "On [MetLife's] construction, then, the operation of the Initial Event Sentence is restricted to proposed settlements: (a) of TPD claims (b) that are not mental illness related (c) and do not result from the loss of the use of two limbs, etc (d) where the proposed settlement is below $200,000 (e) and the claim is caused by events before 1 July 2005."
12. I agree with the submission that it is "unlikely that the intended effect of the Initial Event Sentence was to confer on RGA a particular ability to scrutinise such settlements."
13. There is a related problem, which is well encapsulated in RGA's written submissions: The [purpose posited by MetLife] is to allow RGA a greater degree of scrutiny in respect of proposed settlements of claims arising from pre-1 July 2005 events. ... But to what end? On MetLife's construction, the Initial Event Sentence is not a limit on coverage, so ex hypothesi RGA is obliged to provide cover under the reinsurance. Moreover, the Death and TPD benefit under the Blue Ribbon Policy is a fixed sum, determined by reference to objective matters such as age, salary, etc. While one can conceive of a situation in which MetLife might settle a disputed claim for less than that fixed sum, it is not apparent why a reinsurer might rationally be more or less interested in scrutinising the quantum of such a settlement depending on whether or not the claim arose from pre-1 July 2005 events." I respectfully agree with this submission.

Back-to-back presumption

1. MetLife relied in its written submissions upon "the proposition that as a principle of construction of reinsurance contracts there is a presumption that the reinsurance is back to back with the underlying policy, and that it requires clear language within the contract to rebut the presumption", citing Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852 and Wasa International Insurance Co Ltd v Lexington Insurance Co [2010] 1 AC 180; [2009] UKHL 40. That puts the matter too broadly. In oral submissions MetLife clarified that the back to back presumption applied "as an ordinary aspect of facultative reinsurance on a proportional basis, where the reinsurer is reinsuring a portion of the same risk as the primary insurer". The explanation was given by Lord Collins in Wasa at [116] (having addressed it in more detail at [60]-[62]): "The presumption that the liability under a proportionate facultative reinsurance is co-extensive with the insurance should be a strong one because (as I have said) the essence of the bargain is that the reinsurer takes a proportion of the premium in return for a share of the risk."
2. To similar effect, the presumption is described by C Edelman QC and A Burns, The Law of Reinsurance (2nd ed 2013, Oxford University Press) at p 55 as follows: "the presumption is a strong one and the starting point is that the reinsurer and the original insurer enter into a bargain that if the insurer is liable under the insurance contract, the reinsurer will be liable to pay the proportion which it has agreed to reinsure. It is not necessary to characterize the reinsurance policy as liability insurance to achieve this result. It is essentially a question of commercial intentions and expectations. In the usual case, any loss within the coverage of the insurance will be within the coverage of the reinsurance."
3. The nature and extent of the presumption is not without controversy. Two other commentators have written that Lord Griffiths' view underlying the presumption (namely, that a reinsurer offered a risk has only two options: to accept or reject the risk, and if, accepted, how big a percentage to write), "is, with respect, too simplistic": P O'Neill and J Woloniecki, The Law of Reinsurance in England and Bermuda (4th ed 2015, Sweet & Maxwell), p 216. Those authors consider the position in some detail at pp 215-217. It is not necessary to address this issue any further in order to resolve this appeal.
4. The point of present relevance is that the presumption is just that, a presumption, which is capable of being displaced. The need for such a presumption is at its highest where the documentation is slender, and perhaps especially where a reinsurer is bound by a slip. It was a slip which incorporated "Form J1", a standard form of reinsurance policy used in the Lloyd's market, which evidence the contract of reinsurance in Vesta. The relevant paragraph of the form was reproduced by Lord Templeman at 891, and described by his Lordship as "both inelegant and ungrammatical": "... the underwriters hereby agree to reinsure against loss to the extent and in the manner hereinafter provided. Being a reinsurance of and warranted same gross rate, terms and conditions as and to follow the settlements of the company [Vesta] and that the company retains during the currency of this policy at least the amount stated in the schedule as the retention on the identical subject-matter and risk and in identically the same proportion on each separate part thereof but, in the event of the retention being less than that stated in the schedule, the underwriters' lines to be proportionately reduced."
5. Lord Griffiths agreed with, and added "obscure" to Lord Templeman's description of the terms being inelegant and ungrammatical: at 893. The critical words in the incorporated form were "same gross rate, terms and conditions as".
6. MetLife said that cl 12.1 was a provision whose effect was that the reinsurance was "expressly back to back with the reinsured policy, and any variation to a reinsured policy must be reinsured separately". In response, RGA emphasised the words "on the basis", which fell short of a provision that the reinsurance was "on the same terms". RGA submitted: "[T]hat clause does nothing more than provide that an obligation on the part of Metlife to inform RGA and separately negotiate the terms of reinsurance in the event that they choose to alter the terms of an underlying policy. Even if that were not the case, as the learned trial judge pointed out, it can't be read as precluding a later agreement in the nature of a facultative reinsurance which departed from strict back-to-back cover."
7. MetLife accepted, candidly and properly, that in one respect the coverage of the Addendum differed from the coverage of its Blue Ribbon policy, by reason of the express provisions under the heading Automatic Limits. The gravamen of MetLife's submission was that the back-to-back presumption was not displaced any further. MetLife emphasised that the presumption in reinsurance contracts was one that was strong, and not easily rebutted. It relied on what had been said by Mance LJ (with whom Roch LJ agreed) in Groupama Navigation et Transports v Catatumbo CA Seguros [2000] EWCA Civ 220; [2000] 2 Lloyd's Rep 350 at [33]: "The conclusion to which I have come applies because the warranties in the insurance and reinsurance were in terms effectively identical. It is only the differing proper laws of the two contracts which opens the argument that, whatever the warranty's effect in the original insurance, the express warranty in the reinsurance has a different, overriding effect. Had the two contracts contained warranties expressed in different and irreconcilable terms, different considerations could have arisen. Likewise, if the reinsurance had contained a warranty which had in terms no counterpart in the insurance. It would then be clear that the two contracts were not and could not to that extent be treated as back-to-back. There would be no possibility of reconciling them, or of deriving the meaning or scope of the reinsurance warranty from any equivalent in the original insurance. The reinsurance warranty would in that situation be and remain a term to be viewed purely through the eyes of English law and s.33(3) of the Marine Insurance Act. But that is because the insurers would, contrary to normal contemplation, have so arranged affairs that the insurance they issued and the reinsurance they had were not back-to-back .... Even if this warranty has (contrary to my own impression) no counterpart in the original insurance, insurers' failure (quite probably by oversight) to align the terms of the two contracts in one respect does not mean that the two contracts were not aligned in the present different respect relating to class." [Emphasis added.]
8. MetLife invited this Court to treat the passage emphasised as supporting the conclusion that although in part the presumption had been displaced by the automatic limits in the Addendum, it was otherwise preserved, and could be used to confine the legal meaning of the Initial Event Sentence to one which applied only to the Claims Handling Limits, rather than to a further limitation on cover. It also relied upon Tuckey LJ's observation at [17] that the presumption did not extend to "provisions relating to ancillary or procedural matters such as claims control, law and jurisdiction and arbitration".
9. The primary judge addressed the presumption at [80]-[81] as follows: "I do not think that the back to back presumption has any significance in the context of this case. Obviously enough, the policies are not back to back in one important respect. Perhaps more fundamentally, the presumption could only be applied if the language of Addendum Four permitted it. To adopt and paraphrase what Hobhouse LJ said in [Municipal Mutual Insurance Ltd v Sea insurance Co Ltd [1997] Lloyd's Rep 421], the language of the contract should not be distorted or disregarded so as to give effect to the presumption. Clause 12 of the treaty (and other language used in it) certainly presupposes that the reinsurance will be back to back with the underlying insurance. But where an amendment to the treaty breaks that nexus (as on any view Addendum Four does), the force of cl 12 (and that other language) is diminished."
10. MetLife submitted that that reasoning "rather inverts the presumption" because "one begins with the presumption and then one sees whether there are clear words that displace it and the question is not whether Addendum 4 permits the presumption, of course it does, because it's part of a treaty that has cl 12.1 in it that expressly says, 'This is the position.'" MetLife also submitted that the reasoning disregarded what Mance LJ had said in Groupama v Catatumbo, that "it's only to the extent of the clear inconsistency that the presumption is displaced".
11. I respectfully agree with the conclusion of the primary judge that the presumption has no significance in the construction of the Addendum. My reasons are slightly different from those of his Honour.
12. Let it be assumed there is a presumption, in the terms framed by MetLife. The presumption is capable of being displaced, and (it is common ground) has been displaced in part by the provisions governing automatic limits.
13. The presumption is especially called for when reinsurance is effected in short form documents. But that it not this case. One of the features of the Addendum is that the parties have taken considerable steps to produce a document which states their bargain in terms which do not require recourse to the underlying Blue Ribbon Policy.
14. The Addendum stands in marked contrast with the slip in Vesta which stated "same gross rate, terms and conditions". A remarkable thing about the Addendum is that a significant proportion of it is directed to reproducing the salient aspects of MetLife's Blue Ribbon policy. Examples may be found in the verbatim reproduction of the definition of "on duty injury" and "off duty injury" on p 2, the description of the TPD Benefit on p 4, and, especially, the whole of p 3 which reproduces in a different form the way in which the death benefit if calculated for both on-duty and off-duty claims.
15. The back-to-back presumption is not only necessarily displaced by the different coverages of the insurance and reinsurance policies. A large part of the Addendum is directed to replicating provisions from the Blue Ribbon policy. That also suggests that the presumption does not apply. The overwhelming inference to be drawn from the majority of the pages of the Addendum is that the parties have sought to create a free-standing document.
16. Clause 12.1 of the treaty does not take the matter any further. Clause 12.1 does not entitle the Court to disregard the contractual language used by the same parties more than a year later to document their reinsurance. Even had the mechanism of cll 8 and 10 been used, the reinsurance contract would have been as stated in part D (which includes cl 12.1) "unless agreed otherwise". That remains the position where as here the parties have recorded their facultative reinsurance in the Addendum.
17. To summarise, the Addendum is evidently not a document like a traditional slip, which is opaque when considered in isolation, and which requires a presumption in order to fix its legal meaning. Rather, the parties have by their Addendum sought in large measure to restate the terms of the bargain, both where it diverges from the underlying insurance, and where it replicates the underlying insurance. I do not consider that the back-to-back presumption is available to give a narrow meaning to the Initial Event Sentence.

MetLife's remaining criticisms of the primary judge

1. MetLife submitted that the primary judge had misrecorded its submission as to the purpose of the Initial Event Sentence. RGA accepted that that was so, although adding that "one might feel a degree of sympathy for the learned trial judge" because "the construction now advanced by the Applicant found no reflection in the List Statement, nor in the Applicant's written submissions below". MetLife did not take issue with RGA's observation, either in its written submissions in reply, or in oral submissions.
2. However, nothing turns on the error. The primary judge regarded the purpose he understood MetLife to be advancing as illusory. The same is true of the purpose advanced by MetLife on appeal. The result is the same, namely, the rejection of MetLife's construction.
3. Finally, MetLife was critical of [48] of the reasons of the primary judge, although noting, correctly, that this was a 'minor point'. The criticism is unfounded, having regard to paragraph 31 of MetLife's written submissions at first instance.

Conclusions on the primary question

1. Although both parties have ranged widely over the context and purpose of the treaty and the Addendum, the result is to conclude that the most important considerations are located in the text of the document executed in late 2006 recording their bargain. There is force in MetLife's submission that the Initial Event Sentence is poorly placed. However, it is poorly placed whichever construction be preferred. It is difficult to see that, as construed by MetLife, the sentence serves any sensible commercial purpose, and the commercial improbabilities to which MetLife points are not established as considerations informing construction. The ordinary meaning of the Initial Event Sentence is against MetLife's construction, and the back-to-back presumption does not assist MetLife. The primary judge was correct to uphold RGA's construction.
2. Ultimately, in reaching that conclusion, it is not necessary to resolve the question of construction of cl 4.2 to which reference was made at the outset of these reasons. Even if MetLife were bound to effect reinsurance with RGA, I do not regard that consideration as undermining what flows from the text of the Initial Event Sentence, in the face of the relatively weak countervailing factors upon which MetLife relied.

The subsidiary question of construction

1. The primary judge addressed the subsidiary argument very concisely, and the parties' submissions directed to it were likewise more concise. His Honour's reasoning is found at [97]: "The language of the Initial Event Sentence, on this point at least, is clear. If the claim is to be eligible for consideration, the initial event leading to it or contributing to it must occur after the specified date. Even if the words 'leading to' were to be taken as referring to the last, or most proximate, cause, those words must not be read in isolation. They are followed immediately, and disjunctively, by the words 'or contributing to'. Presumably, the parties intended that compound causal expression to mean something. The words 'or contributing to' would naturally encompass some cause which, although not the immediate or temporally most proximate cause of the claim, nonetheless contributed, at least in some way that was not, as the parties put it in the statement of agreed facts, de minimis, to the occurrence of the condition that led to the making of the claim."
2. MetLife submitted that the Initial Event Sentence directed attention to the events leading to a claim being made by a police officer, rather than the events leading to the condition or "insured event". That was either the police officer's death, or else his or her total and permanent disablement. In the case of death, that itself was the event giving rise to the claim on the Blue Ribbon Policy. In the case of Total and Permanent Disablement, the claim required the officer's absence from work through injury or illness for a period of six consecutive months, following by proof to the insurer's satisfaction that he or she was unlikely ever to engage in relevant employment. The event giving rise to the claim was the injury or illness causing six months' absence from work.
3. MetLife maintained that the Initial Event Sentence did not look to the events which themselves gave rise to the death or total and permanent disablement of the police officer.
4. Once again, MetLife called in aid the "significant divergence" between insurance and reinsurance to which acceptance of RGA's construction would give rise, noting that MetLife was unable to deny cover based on pre-existing events. The example given in oral submissions was as follows: "The police officer might have died of lung cancer and might have been a heavy smoker since the 1980s. RGA say, 'Well, we're entitled to refuse reinsurance because we can identify a significant cause of that death that occurred 30 odd years ago.' And it need not be that extreme. Any significant cause that they can lay their hands on before 1 July 2005 would entitle, on their argument, them to refuse a death claim, which is a radical change in what people would ordinarily regard as a valid death claim which turns simply on the event of death, particularly in a policy like the Police Blue Ribbon Policy which doesn't have any exclusions for pre-existing conditions and doesn't have any provision for an underwriting assessment of the health of particular police officers."
5. It added that the information which MetLife was required to supply to RGA would be insufficient to enable RGA to ascertain whether the exclusion, so defined, would apply. Further, because MetLife itself was only entitled to information necessary for it to determine whether to accept or decline a claim, the information required by RGA might not be available to it even if it had access to all of the information in the possession of MetLife.
6. It is not necessary to summarise RGA's submissions in response in any detail. The words "leading to or contributing to" are, as the primary judge pointed out, impossible to reconcile with MetLife's submission. The submission based upon the "significant divergence" falls short of demonstrating on the basis of evidence a matter which is to be imputed to the parties at the time their bargain was struck.
7. RGA also submitted that MetLife Insurance Ltd v FSS Trustee Corporation; FSS Trustee Corporation v Maund [2014] NSWCA 281 was dispositive on this issue. I disagree. As MetLife submitted, the issue was not live in Maund, because on any view Ms Maund's injury was suffered after 2005. Cases are only authority for what they decide.

Conclusion and orders

1. For those reasons, the answer given by the primary judge to the first question was correct. MetLife accepted that his Honour's approach to the two sample claims, and hence the answers to both parts of the second questions, was, on that construction, correct. It follows that the appeal should be dismissed, with costs.
2. I propose the following orders:
3. Grant leave to appeal.
4. MetLife to file a notice of appeal in the form of the draft contained in the White Book within 7 days, and otherwise dispense with the rules as to service.
5. Appeal dismissed, with costs.
6. EMMETT AJA: This appeal is concerned with the proper construction of an addendum to a reinsurance treaty made between the appellant, MetLife Insurance Ltd (MetLife) and the respondent, RGA Reinsurance Company of Australia Ltd (RGA). I have had the advantage of reading in draft form the proposed reasons of Leeming JA. I agree with his Honour's conclusion, for the reasons proposed. I also agree with the orders proposed by Leeming JA. However, I propose to make some additional comments.
7. The documentation that the Court has been called upon to construe is not something in which its author should have any pride. It is unfortunate that documentation relating to liabilities that run to many millions of dollars should be so poorly drafted. It is necessary to make such an observation since the sloppiness of the drafting of an instrument is a matter that must be considered when endeavouring to construe it. In the circumstances, I wish to say something about the documentation under consideration.
8. MetLife was formerly known as Citicorp Life Insurance Ltd. At a time when it was so known, a contract of reinsurance was executed on behalf of it and RGA on 23 June 2003 (the original treaty). On 5 November 2006, the original treaty was amended by an instrument signed on behalf of MetLife on 5 November 2006 and on behalf of RGA on 15 December 2006. The instrument was described as "addendum number 4" to the original treaty (Addendum 4). The purpose of Addendum 4 was to provide for reinsurance of certain liabilities of MetLife under a group life insurance policy contract entered into between MetLife and FSS Trustee Corporation (the policy owner), described as a "blue ribbon" policy (the blue ribbon policy). The question in the appeal concerns the construction of Addendum 4. Although Addendum 4 is described as "addendum number 4", no other addenda were in evidence, presumably because they were not thought by the parties to be relevant to the construction of Addendum 4.
9. The blue ribbon policy was signed on behalf of MetLife on 19 December 2005 and on behalf of the policy owner on 23 December 2005. The commencement date of the blue ribbon policy was 1 July 2005. In essence, by the blue ribbon policy, MetLife agrees to pay to the policy owner the Sum Insured in respect of any police officer who is a member of the First State Superannuation Scheme and who dies or suffers from total and permanent disablement while the blue ribbon policy is in force.
10. The original treaty itself is a reasonably complex instrument. It recites that MetLife provides insurance cover under contracts of group life insurance described in Schedule A (the Policies) and that the parties wish to establish an arrangement for MetLife to reinsure liabilities under the Policies with RGA.
11. The original treaty consists of the following parts: Part A: Agreement Part B: Automatic terms Part C: Facultative terms Part D: Reinsurance Part E: General Part A sets out the arrangement for RGA to reinsure MetLife's liability under the Policies. Part B sets out the arrangement for RGA to reinsure MetLife's liability under the Policies automatically. Part C sets out the arrangement for MetLife to apply, RGA to make offers and MetLife to notify any acceptance of such offers in relation to the reinsurance of MetLife's liability under policies other than those reinsured in Part B. Part D applies to each automatic reinsurance entered into in accordance with Part B and each facultative reinsurance entered into in accordance with Part C. Part E applies to the terms in Part B and Part C and each reinsurance in Part D.
12. In addition, the original treaty included schedules dealing with the following matters: Schedule A: Description of the Policies Schedule B: Automatic limits Schedule C: Sums reinsured Schedule D: Automatic reinsurance premium rates and expense allowances Schedule E: Profit share Schedule F: Claim handling limits
13. The body of the original Schedules in turn refer to appendices as follows: Appendix A: The Form of Policies Appendix B: Group life premium rates Appendix C: Increases in GSC rates Appendix D: Group salary continuance insurance rates Appendix E: Countries outside Australia where fewer than 5% of members were residing temporarily.
14. Schedule D is relevant. It is referred to expressly in cll 14 and 16.1 of the original treaty. Clause 14 provides that MetLife must pay the reinsurance premium in accordance with Schedule D. Clause 16.1 provides that RGA must pay expense allowances to MetLife in accordance with Schedule D. Schedule D contained two sub-headings as follows: Reinsurance premium rates Expense allowances.
15. Addendum 4 relevantly provided that MetLife and RGA agreed that the original treaty was to be amended in the manner set out in Addendum 4 and that the changes would take effect from 1 July 2005. It stated that Schedule D was to have "Section B - Facultative Reinsurance NSW Police Force" added, as outlined in "the attachment" and that all other terms and conditions were to remain the same as defined in the original treaty. The attachment is headed "Facultative Terms" and states that the sections following describe the special rates, terms and conditions for "the groups reinsured on a Facultative Basis". It is quite unclear why the parties thought it appropriate to add the attachment as Section B of Schedule D to the original treaty. The subject matter of the attachment appears to be totally unrelated to the subject matter of Schedule D. There is no Section A in Schedule D. It may be that there are other addenda to the original treaty that inserted a Section A in Schedule D. However, as I have said, if there were other addenda, they were not in evidence.
16. The attachment contains the heading "SECTION B - NSW POLICE FORCE", after which followed material under various headings as follows: Effective date of treaty addendum Reinsurance basis Experience refund First State Super and Recapture Period On-duty versus off-duty benefit Distribution system Coverages: Death benefit TPD benefit Policy options: Automatic limits Claims handling limits Reinsurance allowance Reinsurance rate guarantee Reporting and billing statements Reinsurance premium rates Policy document Records and reporting: Records for administration Records for claims. Under the heading "Policy document" reference was made to Appendix A.
17. The words that give rise to the dispute between MetLife and RGA are contained under the heading "Claims handling limits". Under that heading, the following appears: With respect to the settlement of reinsured claims of below the claims handling limit, RGA will follow METLIFE's claims settlement decisions. For amounts in excess of this RGA must pre-approve all claim payments by METLIFE. For a claim to be eligible for consideration under the reinsurance arrangement the initial event leading to or contributing to that claim must occur after the date of effect of the treaty. Benefit Sum Insured Death $500,000 TPD (non mental illness related claim) $200,000 TPD (mental illness related claim)* Nil

*All mental illness related TPD claims are to be referred to RGA for pre-approval. RGA Australia reserves the right to change the above limits subject to a 90-day notice period.

1. The principal question was whether, as RGA contended and the primary judge concluded, the second paragraph in the material just set out should be construed as relating only to the claims handling process or whether it should be construed as constituting a limitation on the cover to be afforded by RGA to MetLife in respect of claims made under the blue ribbon policy. That is to say, the question is whether the sentence operates so as to limit MetLife's entitlement to indemnity under the original treaty, as amended, so that no such indemnity is available where the initial event leading or contributing, to an extent that is more than de minimis, to the disablement that is the subject of a claim against MetLife under the blue ribbon policy occurred prior to the inception of the original treaty as amended.
2. I agree with Leeming JA that the most important considerations are located in the text of Addendum 4, the document executed by the parties to record their bargain. Clearly enough, the relevant material is poorly placed, whichever construction is adopted. As construed by MetLife, the sentence does not appear to serve any sensible commercial purpose and the ordinary meaning is not consistent with the construction contended for by MetLife. Further, the back-to-back presumption relied on by MetLife does not assist. Accordingly, I agree with Leeming JA that the primary judge was correct to uphold RGA's construction.

Annexure: Addendum Number Four to the Life Reinsurance Agreement Addendum Number Four (131 KB, pdf) Addendum Number Four - text only version (29.8 KB, docx)

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. Decision last updated: 28 March 2017