These proceedings concern a Term Life Contract of Insurance. The proceedings raise two distinct issues namely:
1. Whether the plaintiff has been underpaid on a claim on that policy, which is a question of construction of the policy ("the Construction Issue"); and
2. whether the defendant is liable to pay to the plaintiff interest pursuant to the provisions of section 57 of the Insurance Contracts Act 1984 ("the Interest Issue")
[2]
The Construction Issue
The plaintiff's insurance cover with the defendant's predecessor, Asteron Life Limited ("Asteron"), commenced on 25 January 2006. The initial terms of that cover are set out in the 25 January 2006 Term Life policy schedule (PX1 165 - 166) and the Term Life policy document (PX1 35 - 62). Relevantly:
1. The plaintiff held Total and Permanent Disability Cover ("TPD") providing for a single payout with an own occupation definition (Policy schedule, PX1 166);
2. The plaintiff's cover was subject to an "Automatic Increase Benefit" (Policy schedule, PX1 166) by which the plaintiff's sums insured for Term Life and TPD were indexed annually on 25 January (cl 5.3 policy document, PX1 40);
3. The policy terms were subject to automatic "upgrades" or "improvements", at no increased cost to the plaintiff (cl 3.1 policy document, PX1 39);
4. The TPD insuring clause required Asteron (and subsequently the defendant) to pay the "sum insured for total and permanent disablement while covered … for this option" (cl 6.1 policy document, PX1 43);
5. By reason of the plaintiff holding "own occupation" TPD cover, the plaintiff would be totally and permanently disabled if he satisfied any of subclauses 6.1.2(a), (b) or (c) (PX1 43 - 44). Of those, only cl 6.1.2(a) is relevant for the purposes of these proceedings;
6. The term "sum insured" in the TPD insuring clause meant "the amount stated in the schedule, adjusted under section 5.3 …" (Cl 10 policy document, PX1 58).
Section 6.1.2 (a) of the Contract of Insurance is central to the Construction Issue and is in the following terms:
"6.1.2 If the schedule states that own occupation applies
Section 6.1.2 does not apply if modified total and permanent disablement applies
In addition to the criteria referred to in section 6.1.1, if the schedule states that own occupation applies, you will also be totally and permanently disabled if (a), (b) or (c) below applies:
(a) You have suffered a sickness or injury while working in regular employment for income, or while unemployed for less than 12 months, and:
you have been absent from and unable to work because of the sickness or injury for a continuous period of at least 6 months; and
we believe, after consideration of medical and any other evidence , that you are incapacitated to such an extent that you are unlikely ever to be able to work again in the occupation, in which you were last engaged before becoming unable to work."
In May 2007, Asteron upgraded the terms of the plaintiff's cover, in accordance with cl 3.1 (Asteron Enhancements, PX1 167 - 199 and Asteron letter to plaintiff 20 August 2007, PX1 368 - 369). Relevantly, the "enhancements" included the revision of the TPD waiting period from "at least 6 consecutive months" to "at least 3 consecutive months where medical evidence clearly indicates that you will be unable to work for a period of at least 6 consecutive months" (Asteron Enhancements, PX1 171).
In November 2010, Asteron issued what the defendant contends were further upgraded or "enhanced" policy terms. Those "enhanced" terms are contained in the Life Cover policy document (PX1 200 - 231).
The defendant contends that the 2010 policy terms are applicable, while the plaintiff contends for the 2005 terms, as varied in 2007. As the parties were in agreement that, in these proceedings, nothing turns on the distinction between the 2005 Policy wording, as enhanced by the 2007 variation, and the 2010 Policy wording I do not consider it is necessary for me to resolve the issue as to which are the applicable policy terms. I shall however proceed by reference to the 2005 conditions, as varied in 2007.
By virtue of the original terms of the plaintiff's TPD cover, and the May 2007 amendments to those terms, at the time the plaintiff came to lodge his TPD claim in October 2022, his "own occupation" TPD claim required the establishment of the following:
1. That the plaintiff had suffered a sickness or injury while working in regular employment for income;
2. That the plaintiff had, for at least 3 continuous months been absent from work and unable to work because of that sickness or injury;
3. That medical evidence clearly indicates that the plaintiff will be unable to work for a period of at least 6 consecutive months; and
4. That the defendant believed that the plaintiff is incapacitated to such an extent that he is unlikely ever to be able to work again in his own occupation.
Prior to his ceasing to work, the plaintiff practised as a chiropractor. As a result of degenerative osteoarthritis in his left shoulder, the plaintiff, who was only 44 years of age at the time, ceased work permanently on 18 June 2022 (PX1 71). Thus, the date three months after the day upon which he ceased work was 18 September 2022, while a six months' waiting period (if that latter period be required) would extend to 18 December 2022.
If either of these dates was the relevant date for the calculation of the plaintiff's TPD benefit, then there was no difference in the payment which the plaintiff would receive between the 2005 Policy as "enhanced" by the 2007 Policy, and the 2010 Policy. This is so as the payment in each case would be made by reference to the applicable 25 January 2022 benefit.
The crucial issue driving the proceedings, was the fact that on 25 January 2023, there occurred a policy anniversary, and at that time the TPD sum insured increased from $2,141,295.26 to 2,248,360. The difference in the two figures, being 107,064.80, is the sum sought in the Statement of Claim, being the sum representative of what the plaintiff alleges is an underpayment of his TPD benefit.
It was not until May 2023 that the defendant formed the opinion that the plaintiff was incapacitated to such an extent that he is unlikely to ever be able to work again in his previous occupation. The plaintiff referred to this as the formation by the defendant of a "Prognostic Belief". The plaintiff says that this is the crucial date for determination of the quantum of his benefit.
Put simply, the parties contentions are as follows. The plaintiff says that the sum insured is to be determined when each of the criteria to clause 6.1.2 (a) are met. That is to say the sum insured is to be determined as at May 2023 and accordingly is $2,248,360.
The defendant contends that the formation of the prognostic belief is merely an "adjectival" requirement, and that the sum insured is to be determined on the date of the claim, or the date of the expiry of the three months waiting period, or perhaps await the expiry of a six month waiting period. As each of those dates fell prior to the 25 January 2023 policy anniversary, on the defendant's case. the sum insured was, $2,141,295.26.
This sum was paid to the plaintiff.
[3]
The Authorities
The defendant took me to several authorities which it contended would assist me on the Construction Issue. Indeed its embrace of the suggestion that Prognostic Belief is merely "adjectival" involves an adoption of that adjective to the facts with which Lindsay J was concerned in Harrison v Retail Employees Superannuation Pty Ltd [2015] NSWSC 1665.
The authorities to which I was directed by the defendant each dealt with quite different contractual provisions than those with which I am concerned, which provisions in turn were being applied in quite different factual situations than those which the present proceedings concern. As such I did not consider the authorities of great assistance in the task which confronts me in relation to the Construction Issue.
The defendant also relied on a well-known line of authority which dictates that a Court, when construing a commercial contract, avoids a construction of that contract which would produce an absurd or uncommercial result. The authorities emphasise that the Court favours a construction of a commercial contract that will provide a "business common-sense" outcome.
It should be noted however, that in recent times the Courts have regularly commented upon the difficulty of ascertaining what in fact is "business common-sense" in any given case.
In Maggbury Pty Ltd v Hefele Aust Pty Ltd (2001) 210 CLR 181 at [11], Gleeson CJ, Gummow and Hayne JJ cautioned that:
"what in respect of a particular contract comprises 'business commonsense', as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible."
In Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566 at [47], Finkelstein J said:
"[A] judge must be cautious when there is an attempt to sway a case by reference to commercial good sense, because views may easily differ on what is good sense, and in some cases a party is willing to bargain away a good sense result on one aspect of a contract because of a perceived advantage in another."
Further, in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd (2004) 12 BPR 22,879 at [125]-[127], Young CJ in Eq said:
"Although there are references in the authorities to construing document with regard to 'business commonsense', the caveat… must always be at the front of one's mind that what is business commonsense depends a lot upon the perspective of the parties , often their perspectives may differ considerably and that one often has to delve deeply into extrinsic details before one can see just what is commonsense in any particular commercial transaction…
It is also fraught with danger to Judge the business commonsense or sensible operation of a commercial contract by one's own preconceptions of what is sensible."
Similarly, in North Sydney Leagues Club Ltd v Synergy Protection Agency Pty Ltd [2008] NSWSC 413 at [40] , Einstein J said:
"… it is extraordinarily difficult to be certain of what is or is not commonsense in any particular business dealing which has been reduced to writing in the form of a contract. The court requires to be very wary before applying the so-called 'business commonsense' test."
In support of its preferred construction of clause 6.1.2(a), by adoption of a "businesslike approach", Mr Duncan of counsel, who appeared for the defendant, postulated certain hypothetical fact situations some of which involved the proposition of an insured "gaming" the hypothetical situation at hand. Other hypothetical examples postulated situations, which would place the insurer in breach of the terms of the contract.
I do not consider that the concept of business commonsense is to be determined by reference to such hypothetical situations. If breaches of a contract of insurance occur, the Courts will provide a remedy. The operation of the contract is, in my view, to be determined by what occurs when its terms are adhered to, not breached.
This I consider to be a proposition which applies a fortiori to the construction of a contract of insurance. I take this view as in a contract of insurance, the parties to it owe each other duties of the utmost good faith.
Finally, I should add that I do not consider that the construction for which the plaintiff contends would lead to an uncommercial or absurd result. To the contrary, in my view the effect of the plaintiff's preferred construction is to provide an incentive for the insurer to form the Prognostic Belief at the earliest reasonably available time.
This outcome in my mind could not be described as being an outcome which is an uncommercial or an unbusinesslike one.
[4]
Conclusion on Construction Issue
It seems to me that when clause 6.1.2 (a) is considered, one sees a series of requirements to be met, each of which are conjunctive. In my view there is no basis for construing any one of these conjunctive requirements as being subordinate to the others. In my view, each requirement must be satisfied before the TPD claim is to be met, and it is not until the time that they are all satisfied that the sum insured is to be determined.
Thus, subject to a question of a refund of the premium, to which I shall presently refer, the plaintiff is entitled to the sum sought in the proceedings.
[5]
Repayment of Premium
Apparently after the acceptance of the plaintiff's claim, a premium in the sum of $3855.98 paid by the plaintiff after 18 September 2022 was refunded to him. This refund was not sought by the plaintiff. The Plaintiff and defendant were agreed that this sum should be set off against any judgment in the proceedings.
I shall therefore make that adjustment in the orders that I make in favour of the plaintiff in relation to the Construction Issue.
[6]
The Interest Issue
The plaintiff also seeks interest on the insured sum pursuant provisions of s 57 of the Insurance Contracts Act (1984). The principles which guide the Courts in relation to s 57 were not in dispute.
The authorities make clear that the determination of the date from which it became unreasonable for an insurer to have withheld payment is a matter for objective determination, and is to be considered in the context of the particular facts of the case.
The authorities make it plain that an insurer is entitled to an allowance made for the reasonable time required to investigate the case in question: O'Neill v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme & Anor [2015] NSWSC 1248; Ransley v Chubb Insurance Company of Australia Ltd [2015] NSWSC 1350; LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17 at [228] - [258].
The defendant provided a helpful chronology of the steps undertaken in the consideration of the plaintiff's claim. As these dates and the associated narrative were not in dispute, I shall set out the defendant's analysis:
Date Event Comment
27/10/2022 Plaintiff lodges claim for the TPD benefit. This is some 4 months after the Plaintiff ceased work. PX1: 137
04/11/2022 TAL Life provides its first response to the claim to Firths. PX1: 140
10/11/2022 TAL Life advised Firths that it will require the Plaintiff's complete AIA Income Protection File. TAL Life requests direct contact details for AIA. PX1: 142
15/11/2022 Firths provides direct contact details of AIA claims consultant. PX1: 143
08/12/2022 TAL Life advises that it is still awaiting AIA file (has followed up with case manager). PX1: 145
23/12/2022 TAL Life advises that it requires the AIA file to determine next steps. This file is likely to contain relevant medical information, reports, IMEs etc. PX1: 148
03/02/2023 TAL Life advises that it will require an independent IME with an orthopaedic surgeon. PX1: 152A
10/02/2023 TAL Life advises of IME appointment on 30 March 2023 with Dr Finch, orthopaedic surgeon. PX1: 151
17/04/2023 TAL Life advises of receipt of Dr Finch's report. PX1: 155
27/04/2023 TAL Life advises plaintiff that it has not been able to meet the Code of Practice requirement to make the decision within the 6-month Code timeframe due to delays in obtaining additional medical information. A claim recommendation has now been referred to "relevant parties for their review". PX1: 155A; 457
12/05/2023 TAL Life email to Firths advising that claim has been accepted. PX1: 156
16/05/2023 Claims acceptance advice to Plaintiff. Payment of benefit made on this date. Refund of premium also paid. PX1: 156A
[7]
Conclusion on Interest
I do not consider that the plaintiff has made out a case for interest under s 57.
The plaintiff saw fit to base his TPD claim made to the defendant, on a different claim which he had successfully made to a different insurer, AIA, in relation to a policy of income protection which he held with that company. In making the claim in that fashion, the plaintiff provided the defendant with what he told the defendant, was a copy of the AIA file. Understandably, the defendant wished to see the totality of the actual AIA file before it considered, and finalised its view on plaintiff's claim.
In my view this was a perfectly reasonable position for the defendant to adopt.
Upon receipt of the plaintiff's claim, based as it was on the AIA file, the plaintiff sought the AIA file from that insurer, but of course the promptitude of the response to that request was out of its control. The defendant followed up its request to AIA for the file, which was eventually provided.
Following receipt of the AIA file on 3 March 2023, the defendant advised that it required the plaintiff to be examined by an independent medical expert. This examination was promptly arranged, but again the timing of the provision of the medical report was out of the defendant's hands. The report was provided on 17 April 2023. This report was considered and the claim was accepted on for the 12 May 2023.
I can see no substance in the suggestion that the actions of the defendant were in any respect so dilatory such as to justify an award of interest under s 57 of the Insurance Contracts Act.
In my view, in considering the defendant's actions it is important to keep in mind the background to the plaintiff's claim, that is to say:
1. the plaintiff was a relatively young man, a chiropractor who, if successful in his claim, was going to receive the benefit on the basis that he would never work again; and
2. as such the claim was always likely to be a very substantial one; and
3. The plaintiff decided to base his claim upon another insurer's file.
4. the defendant owed a duty to other policyholders and to its shareholders to thoroughly investigate the plaintiff's claim.
In addition to the need to form a considered view on the orthopaedic basis for the plaintiff's claim, the defendant also had to investigate and determine the effect, if any, of the fact that in addition to being a hands-on chiropractor in his own practice, the plaintiff received income from work of other chiropractors who he or entities associated with him, engaged.
[8]
Conclusion on s 57
For these reasons I believe that the plaintiff's claim for s 57 interest must fail.
[9]
Costs
As I have indicated, the proceedings were constituted by two quite distinct parts; the Construction Issue, and the Interest Issue. These issues in my view assumed basically equal prominence in the proceedings. The plaintiff was successful on the first issue and unsuccessful on the second. My inclination therefore is to make no order as to costs, though I shall hear the parties on the question of costs, if they wish me to do so.
[10]
Orders
1. Judgment and verdict for the plaintiff against defendant in the sum of $103,208.82
2. Interest thereon at the rates pertaining from time to time pursuant to the provisions of s 100 of the Civil Procedure Act 2005 (NSW)
3. No order as to costs.
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Decision last updated: 19 July 2024