Nino v MLC Limited

LEGISLATION CITED : Insurance Contracts Act 1984 (Cth)

Max Hams v CGU Insurance Ltd [2002] NSWSC 843 CASES CITED : Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857; 213 FLR 174 Bankstown Football Club Limited v CIC Insurance Ltd (Supreme Court of New South Wales, Cole J, 17 December 1993, unreported)

Judith Nino PARTIES : v MLC Limited

COUNSEL : Plaintiff: M J Bleasel Defendant: G Newton

SOLICITORS : Plaintiff: Firths - The Compensation Lawyers Defendant: Turks Legal

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE'S LIST

1271/09 Judith Nino v MLC Limited JUDGMENT 1 HIS HONOUR: On 23 February 2003 the plaintiff made a claim on a policy of insurance issued by the defendant for a benefit for what she claimed was a total and permanent disability within the meaning of the policy. That claim was initially rejected on 15 May 2003. On 15 August 2003 the solicitor for the plaintiff's workers' compensation insurer provided the defendant with certain medical reports evidently prepared in connection with the workers' compensation claim. These were considered by the defendant on 21 August 2003. It notified the plaintiff that to assist it with a further assessment of her claim it would need names and addresses of treating specialists she had seen in the previous eighteen months and further medical information from her treating medical practitioner, Dr Finkelstein. The plaintiff provided the requested information. 2 The plaintiff was referred by the defendant to specialists for further assessment. On 23 February 2004 a Dr Hall provided an assessment of the plaintiff's condition and on 26 February 2004 Dr Sachdev also provided an assessment. In significant respects they conflict. 3 On 19 March 2004 the defendant advised the plaintiff that it stood by its decision made in May 2003 that she did not satisfy the definition of total and permanent disablement in the policy. A further report from an external consultant obtained by the defendant was obtained in May 2004, and on 20 May 2004 the defendant again rejected the claim. 4 On 27 March 2006, the plaintiff having retained a firm of solicitors, through them asked for reconsideration of her claim. A further report from a Dr Patrick (who had seen the plaintiff in 2001 and 2003 in connection with the workers' compensation proceedings) was supplied, namely, a report from that doctor of 12 September 2005. 5 On 25 May 2006 the defendant again rejected the claim. On 1 August 2007 the plaintiff's solicitor sought a further reconsideration of the claim based upon further medical reports. That request was considered but the claim was again rejected on 9 August 2007. 6 On 22 January 2008 the plaintiff's solicitors again sought a review of the decision from the defendant and in support of this contention referred to what were claimed to be decisions made by other insurers on comparable policies to accept the claim. 7 On 25 July 2008 the defendant accepted the claim in the following terms. " We refer to the above claim. Please find enclosed a cheque for $121900.00 representing payment and discharge of the above-mentioned claim. "

8 No reasons were provided as to why the claim, which had been repeatedly rejected, was this time accepted. 9 The plaintiff's claim for interest arises under s 57 of the Insurance Contracts Act 1984 (Cth). Subsection 57(1) provides that where an insurer is liable to pay to a person an amount under a contract of insurance the insurer is also liable to pay interest on that amount to that person in accordance with that section. The plaintiff seeks a declaration that she is entitled to be paid interest. No submission has been made for the defendant that it was not liable to pay to the plaintiff an amount under the contract of insurance. Subsection 57(2) provides: "(2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable. " 10 The plaintiff submits that as the defendant must be taken to be liable to pay the amount which it paid in 2008, she is entitled to interest from a day which was three months after the date she made her claim, that being a reasonable period for the defendant to have investigated the claim. Hence she claims interest under s 57 from 15 May 2003 to 25 July 2008. 11 In Max Hams v CGU Insurance Ltd [2002] NSWSC 843 and Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857; 213 FLR 174 and in other cases, the Court has referred with approval and applied statements which Cole J is reported to have made in Bankstown Football Club Limited v CIC Insurance Ltd (Supreme Court of New South Wales, Cole J, 17 December 1993, unreported). I put the matter that way because his Honour's decision is not available to counsel, and I have not been able to obtain a copy of it today. Apparently it is not to be found in the Law Courts Library or on any online system. Nonetheless, his Honour is reported to have said as follows: " In my view s57 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 s57(2), particularly in circumstances of s57(1) of the Act, where an insurer is liable to pay a person an amount under a contract of insurance. "

12 In Sayseng v Kellogg Superannuation Pty Ltd, Nicholas J summarised the effect of the authorities as follows: " [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."

13 This is not a case in which there has been a determination by a court or a tribunal that the plaintiff was entitled to be paid. Nonetheless, having regard to the way in which the matter has been argued, I proceed on the basis that the defendant does accept that it was liable to pay the amount which it ultimately paid. This is relevant because the basis on which the defendant at least initially rejected the claim was one which it could bona fide have adopted as to the proper construction of the policy, but to which it ultimately did not adhere. Had it adhered to that construction, and had it been correct, then the plaintiff would not have been entitled to the benefit sought. 14 The policy defined the expression "Total and Permanent Disablement Benefit" as follows: " means the Sum Insured payable to the Policy Owner in the event of the Life Insured's total inability - resulting from injury, sickness or disease - to carry out the normal duties of his or her usual occupation for a period of at least six (6) consecutive months, and NAFM is of the opinion that the Life Insured is unable ever to perform any gainful occupation for which the Life Insured is reasonably fitted by training, knowledge or experience. " 15 The expression "gainful occupation" was not defined. The policy provided that: " For the purposes of Total and Permanent Disablement cover, NFAM must be notified if the Life Insured is no longer Gainfully Employed. When the Life Insured ceases to be Gainfully Employed, Total and Permanent Disablement cover will cease from the next Policy Anniversary. " 16 The expression "Gainfully Employed" was defined as follows: " means the continued employment of the Life Insured for a minimum of 30 hours a week. "

17 In her claim made on 23 February 2003 the plaintiff stated that she had ceased her employment with the Department of Education on 19 September 2001. This was owing to an injury which she had suffered in 1996 to her back which was caused by her lifting heavy children. She stated that she had a permanent injury that allowed her to work just two hours a day, four days a week. 18 On 7 May 2003 she informed the defendant that she was working in a casual job six hours per week teaching Spanish to adults at evening College. She said that the maximum number of hours she might be able to work would be eight hours per week. Clearly, on one construction of the policy it could not be said that she was unable to perform any gainful occupation for which she was reasonably fitted by training, knowledge or experience. On the other hand, the material in her claim form, supported by a report from her general practitioner, showed that she could not be employed for a minimum of thirty hours per week in a gainful occupation for which she was reasonably fitted by training, knowledge or experience. 19 The position taken by the defendant on 15 May 2003 was that the plaintiff had predominantly worked in various teaching roles and she was currently performing work which was consistent with work for which she was fitted by training, knowledge and experience. The defendant said: " Given the above we must advise that we are declining your claim on the basis that you are not totally and permanently disabled in accordance with the policy definition and that this is further indicated in that you continue to work on a casual basis. "

20 The defendant did not say that it considered that the plaintiff would be able to perform gainful employment for at least 30 hours per week. 21 The material provided by the workers' compensation solicitors in August 2003 included a report by a surgeon, Dr Patrick, of 4 July 2001. That report stated, amongst other things, that the plaintiff was only fit for lighter work not involving activities such as the physical handling of children, heavy lifting, frequent bending or stooping or work in awkward situations. He expressed the view that the plaintiff would be fit to work for 38 hours per week not involving such activities and/or involving significant squatting or handling of steps or stairs. However, in a report dated 27 March 2003, also forwarded to the defendant in August, Dr Patrick stated his own opinion that: " The reality is that it is unlikely that she will be able to return to the workforce. "

22 He also stated that his re-examination of the plaintiff on 25 March 2003 did not cause him to alter significantly the opinion he had expressed in his earlier report, but there is a manifest contradiction between the two statements. The further medical reports obtained by the defendant in September 2003 and February 2004 also contained contradictions. Her general practitioner, Dr Finklestein, again stated that he could not envisage the plaintiff ever being able to return to the workforce. Dr Hall stated that he did not consider the plaintiff would be able to work for more than 10-15 hours per week at most. He said that she should be able to do two hours five days per week to achieve these if so motivated and if work were available. He said that she would be capable of administrative or clinical work. As I read Dr Hall's report, he does not suggest that the plaintiff could perform that type of work for any longer hours than he indicated. 23 Dr Sachdev was of the opinion that whilst the plaintiff was unfit to do work involving heavy lifting or bending or working on stairs or the like, she should be able to perform her job as a teacher if it were sedentary work and if she were motivated enough to do so, and that she should be able to do such work on a full-time basis. 24 In its letter of 19 March 2004 the defendant again declined to pay the claim for essentially the same reasons as it declined to pay the claim in May 2003. 25 It was submitted for the defendant that having regard to the definition of total and permanent disablement benefit, the plaintiff had to show that she was disabled within the meaning of the clause at a time which was six months after she had ceased her usual occupation. In other words, she had to demonstrate total and permanent disability as at March 2002. It was submitted for the defendant that it was incumbent on the plaintiff to put forward material which demonstrated her disability at that time. It was submitted that the material put forward did not address the definition for her condition as at March 2002. However, it was never in issue that the plaintiff was not able to carry out her normal duties in her usual occupation. Nor was it ever suggested in the correspondence from the insurer that any material should be provided addressing her condition as at 1 March 2002. 26 The claim was rejected on the basis of a view which might reasonably have been taken of the policy as to whether it responded where the plaintiff was unable to perform a gainful occupation for which she was reasonably fitted by training, knowledge or experience. The defendant must be taken to have resiled from that position. 27 It was also submitted for the defendant that the medical reports the defendant received in 2003 and 2004 were inconsistent with the plaintiff's being totally and permanently disabled. That is true of one of the reports, namely, that of Dr Sachdev. It is not true of the report of Dr Hall if the concept of total and permanent disablement is satisfied by the plaintiff's inability to be gainfully employed for a minimum of 30 hours per week. It might or might not be true in the case of Dr Patrick depending on how his apparently contradictory statements in his report of 27 March 2003 are to be reconciled. 28 The defendant never attempted to obtain a clarification of those matters. It is unnecessary to consider the later assessment of the medical evidence. If the policy had the meaning which the defendant initially and for some years attributed to it, then the defendant would not be liable to pay the claim. If there was no such liability the insurer would not be liable to pay interest under s 57(1). But the payment of the claim was not made as an ex gratia payment and, as I have said, the defendant did not deny liability at the hearing before me. Therefore, in considering the reasonableness of the time for the defendant to consider the claim, I proceed on the basis that the policy responded if the plaintiff could not be gainfully employed for at least 30 hours per week. 29 That was not an issue which the defendant specifically addressed in its letters denying cover or in the instructions which it gave to the medical practitioners to assess the plaintiff. The plaintiff's general practitioner stated in his report dated 7 February 2003 that he considered the plaintiff to be permanently disabled. It seems to me that if the defendant had investigated the plaintiff's disability on the basis that the test is that which it must be taken now to have accepted as being applicable to her case, it would have been in a position to deal with the claim reasonably quickly. It may well have received conflicting medical evidence as it did in February 2004, but as the authorities referred to above show, the fact that it might bona fide have been able to form the opinion that the plaintiff was not totally and permanently disabled would not mean that it was reasonable for it to decline to pay a sum which was otherwise due. 30 In the circumstances, I accept that a period of three months from the making of the claim is a reasonable period for it to have conducted such an investigation. For these reasons, the plaintiff is entitled to the relief sought in the summons. 31 I declare that the plaintiff is entitled to be paid interest on her total and permanent disability benefit pursuant to s 57 of the Insurance Contracts Act from 15 May 2003 to 25 July 2008. 32 I order that the defendant pay the plaintiff the sum of $53,879.80. 33 I order that the defendant pay the plaintiff's costs.

[Counsel addressed on costs.] 34 Having regard to the terms of the plaintiff's offer of compromise prior to the institution of the proceedings which she has bettered, I think she is entitled to her costs on an indemnity basis. The compromise of $50,000 in respect of the claim of $53,879.80 is not large, but it is nonetheless significant, particularly for an individual in the circumstances of the plaintiff. I accept that it is sufficient, although only just, to meet the principles concerned with indemnity costs. 35 I order that the defendant pay the plaintiff's costs on an indemnity basis.

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