Xiros v Fortis Life Assurance Ltd [2001] FMCA 15

2. Mr Xiros took out a mortgage for $35,000 on 25 February 1994 with the Adelaide Bank. On 14 March 1995 Mr Xiros took out a further $25,000 loan with the same bank. Mr Xiros was, at that time, advised by the bank's employee, Mr Chris Jones, to apply for mortgage insurance in relation to the second loan, which he did.

3. The mortgage protection insurance was provided by a firm called Covercare and underwritten by the respondent Fortis. The policy included death and permanent disablement plus temporary disablement cover. Mr Xiros took out a separate mortgage protection cover for the original $35,000 mortgage in April 1995. This also included death, permanent and temporary disablement cover.

4. In December 1995 Mr Xiros was diagnosed HIV positive. He became ill on 4 December 1995 but recovered sufficiently in February 1996 to return to his employment. However, in December 1996 he ceased work due to deteriorating health and depression. In January 1997 Mr Xiros was granted a disability pension. In February 1997 Mr Xiros submitted a claim to Covercare under the insurance policies. On 11 March 1997 a Mr Patrick Hurst informed Mr Xiros that the claim was declined on the basis that "the policy excludes all claims made on the basis of the condition of HIV/AIDS." The denial of a payment under the policy of insurance for this reason was confirmed by Fortis in a letter dated 5 February 1998.

5. On 5 April 2000 Mr Xiros lodged a complaint with HREOC through the Norwood Community Legal Service Inc. The complaint alleged that Fortis had been engaged in a course of discriminatory conduct against Mr Xiros, the last discriminatory act being a letter dated 23 March 1999 from Fortis confirming its refusal to pay on the claim under the policy. HREOC was unable to conciliate the complaint and on 9 November 2000 the President informed Mr Xiros by letter of the termination of the complaint. On 30 November 2000 the present application was filed in this Court.

7. The applicant's case is relatively simple. He alleges that he is suffering from a disability in the form of his HIV positive status. He alleges that the respondent Fortis has discriminated against him on account of his disability in refusing cover under the policy of mortgage protection insurance. It emerged at trial that there were two relevant acts of alleged discrimination - the first being the provision of the policy of insurance with an exclusion against cover for conditions relating to HIV and AIDS, and the second being the refusal to pay the claim made under the policy by Mr Xiros. Mr Xiros alleges that there is no proper basis for the exclusion in the policy and that he is therefore the victim of unlawful discrimination of account of his disability contrary to the DDA.

8. At trial, Mr Xiros relied upon his affidavit in support of his application which was sworn on 30 November 2000. Mr Xiros was cross-examined upon his affidavit and gave evidence calmly, quietly and with certainty. He resisted any suggestion that he was aware of his HIV status prior to taking out the policies of insurance. Mr Xiros was aware that he was at some risk due to his lifestyle but he denied that he was a member of a "high risk" group. He had annual blood tests for general purposes as well as occasional blood tests to check his HIV status. The most recent blood test for HIV prior to his taking out the policies of insurance was negative.

9. Mr Xiros stated that he was not shown the policy document containing the exclusion for HIV/AIDS conditions at the time he filled out proposal forms for the insurance, although he conceded that he did sign on the forms a statement that he had seen the terms of the policies. Mr Xiros resisted any challenge to his credit on this point. I accept him as a witness of truth.

10. The case for the respondent is also relatively simple. While not formally conceding that it has discriminated against the applicant in the provision of insurance, Mr Beazley, for Fortis, acknowledged that it was clearly open to the Court to find that Mr Xiros suffers from a disability within the meaning of that term in the DDA and that he had been treated less favourably than persons without that disability because of the exclusion in the insurance policy. The defence of the respondent is based upon s.46(2) of the DDA which provides that it is not unlawful for a person to discriminate against another person on the ground of that person's disability with respect to policies of insurance where the discrimination:

(f)(i) is based upon actuarial or statistical data on which it is reasonable for the first mentioned person to rely; and

(ii) is reasonable having regard to the matter of the data and other relevant factors; or

(g) in a case where no actuarial or statistical data is available and cannot reasonably be obtained the discrimination is reasonable having regard to other relevant factors.

11. The respondent says that the exclusion in issue in this case is based upon actuarial or statistical data on which it was reasonable for the respondent to rely and that the exclusion in the policy is reasonable having regard to the matter of the data and other relevant factors. The respondent also relies, to the extent necessary, on paragraph (g) of s.46(2).

12. Mr Beazley accepted that the respondent bears the onus of establishing its entitlement to rely upon the exemption contained within s.46(2) of the DDA. In the best traditions of the bar he readily made concessions where appropriate and, noting that Mr Xiros was an unrepresented litigant in person, Mr Beazley drew the Court's attention to issues of significance relevant to Mr Xiros' case. The Court wishes to place on record its appreciation of the assistance rendered by Mr Beazley as an officer of the Court.

13. The respondent relied upon an affidavit by its company secretary, Peter Samuel Bolitho sworn on 5 January 2000 and also on oral evidence provided at trial by Mr Bolitho and by Mr Robert Cameron, the chief actuary for Fortis. Mr Bolitho was cross-examined briefly by Mr Xiros on his evidence but Mr Xiros did not choose to cross-examine Mr Cameron. Noting that the evidence of these witnesses was quite technical, I directed questions to them myself that I thought might be relevant to the case presented by Mr Xiros. Both Mr Bolitho and Mr Cameron provided factual and reliable evidence.

14. Mr Beazley also tendered extensive documentary material in support of the respondent's contention that there was a proper actuarial basis for the exclusion clause in the insurance policy.

15. There is no serious question whether the applicant is suffering from a "disability" for the purposes of the DDA. Section 4 of the DDA defines disability as meaning, relevantly, the presence in the body of organisms capable of causing disease or illness. Clearly, HIV satisfies that description. Also, it is quite clear that Mr Xiros has been the victim of discrimination within the meaning of section 5 of the DDA in that the policy of insurance provided to him treated him less favourably than a person who does not have HIV. While Mr Xiros in his application also relied upon section 6 of the DDA that seems unnecessary. On the basis of the evidence, prima facie, the respondent has engaged in conduct contrary to s.24 of the DDA in that it has provided insurance services to the applicant on terms or conditions which discriminate against the applicant by reference to his disability. It follows, that the only real issue in this case is whether the respondent is entitled to the benefit of the exemption from liability provided in s.46(2) of the DDA.

16. On this issue, the evidence of Mr Bolitho and Mr Cameron and the documents tendered during the course of their evidence are determinative. I make the following material findings:

(a) the respondent provided policies of insurance of the kind taken out by Mr Xiros between 1991 and 1996. The policy in force at the time the two insurance policies were taken out by Mr Xiros was one with terms printed in November 1994: exhibit R4. On page 12 of the policy booklet there is clearly excluded from cover for disablement, involuntary unemployment and death, events or circumstances derived from the Human Immune Deficiency Virus (HIV), Acquired Immune Deficiency Syndrome (AIDS) and AIDS Related Complex (ARC).

(b) The mortgage protection proposals completed by Mr Xiros contained a sheet headed "Important Notices Relating to This Proposal" which asked persons completing the form to "please read the booklet carefully to ensure the policy meets your needs": exhibit R3. In the two proposal forms completed by Mr Xiros he acknowledged that he had read the important notices sheet and that he had been given a copy of the policy document: exhibits R1 and R2.

(c) The kind of policy taken out by Mr Xiros was a mortgage protection policy which protected the bank lender as well as the borrower from circumstances in which payments under the mortgage might cease. This was a low premium policy (the cost of which was approximately $100 per annum), reflecting the insurer's assessment of the risk to it of having to make payments under the policy according to its terms. The policy was a voluntary, not compulsory, form of insurance and it was not necessary that proposers be medically examined.

(d) From the latter part of the 1980s through until the mid to late 1990s, insurers were concerned about the rapid increase in HIV and AIDS infections worldwide. Their concern was particularly directed to the risk of "anti- selection". This is the risk that persons will intentionally select a policy of insurance offered by a particular insurer to provide cover against risks to which those persons are peculiarly susceptible. The risk arises in particular in circumstances where the insurer does not have the opportunity to properly assess its insurance risk at the time that individual policies are proposed, for example, where no medical examination is required. The risk of anti-selection is relatively low in the case of, for example, compulsory superannuation where persons covered cannot choose their insurer and where a broad cross-section of the population is covered. The risk of anti-selection is much higher in the case of voluntary insurance. There is a particular risk of anti-selection in the case of mortgage protection insurance where the insurer is somewhat removed from the process of taking out the insurance, given that the dealings are between a borrower and a lender.

(e) The respondent included an HIV/AIDS exclusion in its mortgage protection policies from the time they were introduced in 1991 and maintained that exclusion until it ceased providing such policies in 1996. The maintenance of the exclusions was reviewed annually by officers of the respondent and after each review the exclusion was maintained. After the respondent ceased to provide this type of insurance the annual reviews continued in respect of existing policies and the exclusion has been maintained to date.

(f) The greatest risk of anti-selection to an insurer arises in the first few years of a policy. This reflects the possibility that the person taking out insurance may be aware or may suspect that he or she may be able to make a claim under the policy in the immediate future. Because that risk reduces over time, the respondent considers making act of grace payments where claims are made a significant number of years after a policy has been taken out, even though the company would be not required under the terms of the policy to make a payment.

(g) Following the rapid increase in HIV and AIDS infections in Australia during the latter 1980s and early 1990s, insurers in Australia, in common with insurers worldwide, experienced a rapid increase in HIV/AIDS related claims during the 1990s.

(h) In making and reviewing the HIV/AIDS exclusion in the policy, the respondent had regard to information and advice provided by its underwriters and the Life Insurance Federation of Australia Incorporated (LIFA). In the period between 1991 and 1996 the information provided was to the effect that persons contracting HIV and AIDS suffered a much higher mortality rate than was the case for a range of other diseases and enjoyed a significantly lower life expectancy.

(i) In a press release issued by LIFA on 2 December 1993, LIFA stated that insurers must retain the right to make exclusions based upon HIV/AIDS from group superannuation schemes. These schemes carried a significantly lower risk to insurers than voluntary mortgage protection insurance policies. The press release noted that for the 12 months ending December 1992, life insurance companies had paid out about $50 million in death and disability claims, nearly $25 million of which was paid in AIDS related group life claims. The press release noted that the figures make it clear that AIDS claims had had a significant impact on the life insurance industry, despite the operation of the exclusions then in place. The press release also stated that, without these exclusions, the level of claims would certainly be significantly higher: exhibit R11.

(j) LIFA prepared a report to its members on 1 March 1994 from Professor John Pollard of Macquarie University directed to the issue of the maintenance of HIV/AIDS exclusions in group superannuation policies: exhibit R10. The report stated that HIV/AIDS has many characteristics that make it materially different from other diseases which may require special underwriting measures. These differences include the relatively small pool of "high risk" persons; the enormous difference in infection rates between "high risk" individuals and all others in the population; the fact that an individual is usually aware that he/she is a member of the "high risk" pool, while others are unlikely to know this about him or her; the fact than an individual may be infected yet appear outwardly perfectly healthy; the fact that an individual outwardly healthy may be aware that he or she is infected with the virus; and the long period of time between infection and AIDS related disability or death, during most of which time the individual appears outwardly to be perfectly healthy. LIFA advised its members that these distinctive characteristics of HIV make it possible for individuals to select against a fund or insurer providing death or disability cover under automatic acceptance arrangements.

(k) Information provided by the underwriter Swiss Re in November 1995 established from European data that the three year survival rate after AIDS diagnosis was still less than 20 per cent and that there had been a 130 per cent increase in AIDS cases from heterosexual contact in the USA between 1992 and 1993: exhibit R12.

(l) In a report to members on Australian AIDS claims dated 31 December 1994: exhibit R13, LIFA reported on the continuing high level of claims against insurers for death and disablement as a result of HIV infection and AIDS.

16. As already noted, s.46(2) provides that discriminatory conduct that would otherwise be unlawful under the DDA by an insurer is not unlawful with respect to policies of insurance where the discrimination is based upon actuarial or statistical data on which it is reasonable for the insurer to rely and is reasonable having regard to the matter of the data and other relevant factors; or in a case where there is no actuarial or statistical data and the same cannot be reasonably obtained, the discrimination is reasonable having regard to any other relevant factors. I was referred to Mr Beazley to the decision of the High Court in Waters v Public Transport Corporation [1991] HCA 49; (1991) 173 CLR 349 where the Court gave consideration to the meaning of the word "reasonable" in s.17(5)(c) of the Equal Opportunity Act 1994 (Victoria). The majority in that case found that the word referred to what was reasonable in all the circumstances of the case. At page 395, their Honours, Dawson and Toohey JJ adopted the following quote from the Federal Court decision in Secretary, Department of Foreign Affairs and Trade v Styles [1989] FCA 342; (1989) 23 FCR 251 at page 263:

The test of reasonableness is less demanding than one of necessity but more demanding than one of convenience... The criterion is an objective one which requires the court to weigh the nature and extent of the discriminatory effect on the one hand against the reasons advanced in favour of the requirement or condition on the other. All the circumstances of the case must be taken into account.

Although the High Court was there dealing with different legislation and with a provision which it treated as not being an exclusionary provision in the same sense as s.46(2), the decision provides a useful guide to the interpretation of the word "reasonable" in s.46(2). That said, the meaning of s.46(2) is clear upon its face and, in particular, it is clear from s.46(2)(g) that this Court can take into account all relevant circumstances where there is no statistical data available. Similarly, the Court should have regard to all relevant factors when considering statistical data that is available.

17. In the present case substantial statistical data is available to satisfy me that there was a reasonable basis for the exclusion in the policies in question offered by the respondent from 1991 until 1996, when viewed against the risk of anti-selection. There is no statistical information before the Court relevant to the period after 1996 when new policies ceased to be offered but existing policies were maintained. There is some evidence before me that the incidence of HIV/AIDS infection has stabilised or declined since that time and that there has been a similar decline in claims against insurers. That being so, a question arises whether it is still legitimate for an insurer to maintain an HIV/AIDS exclusion in a policy of this nature today. The respondent asserts that the last relevant date in this case is March 1997 when the applicant's claim under the policy was rejected. There is little doubt in my mind that at time it was reasonable for the respondent to maintain the HIV/AIDS exclusion, based upon the statistical information and actuarial advice available to the respondent at that time.

18. The applicant asserts that the last relevant act of discrimination occurred on 23 March 1999 when the respondent by letter confirmed its earlier decision not to pay Mr Xiros' claim. I accept that date as the last relevant act of discrimination. By that date, the statistical and actuarial justification for maintenance of the HIV/AIDS exclusion had declined somewhat but, given that the class of persons covered under these policies by the respondent was fixed and closed as at 1996, the risk of anti-selection faced by the respondent remained significant, as the persons holding those policies had taken them out at a high point in infection rates and claims against insurers. I conclude that it was reasonable, having regard to the anti-selection risk faced by the respondent for it to maintain its exclusionary clause in existing contracts of insurance in March 1999 and, hence, to maintain its rejection of Mr Xiros' claim under his policies.

19. It follows that the respondent is entitled to the exemption provided by s.46(2) and that Mr Xiros' application must fail. If Mr Xiros had maintained his policy to date it would no doubt have been open to the respondent to consider an act of grace payment if Mr Xiros had made a claim now. It appears that Mr Xiros has not maintained his policy but it also appears that Mr Xiros allowed the policy to lapse as a result of advice from the respondent or its agents that there was no point in Mr Xiros maintaining the policy, given the exclusion, and that he would benefit from having a partial refund in premiums. It is a matter for the parties to consider whether Mr Xiros should be permitted to reinstate the policies now and whether, if he does so, the respondent would consider making an act of grace payment to Mr Xiros. That is a matter for the respondent and Mr Xiros to consider and it is not appropriate for me to express any view as to what they should do. I do note, however, that Mr Xiros comes out of these proceedings with his credibility intact but with a heavy disappointment because of the failure of his application. His circumstances are clearly unfortunate and this is a matter which the respondent could properly take into account.

20. As to the issue of costs, the respondent has sought an order for costs should it be successful. Mr Xiros told me that he would not resist and order for costs should he be unsuccessful. After due consideration however, I think that that concession was too readily made. Ordinarily, in this jurisdiction as in others, costs follow the event. But there is no absolute rule to that effect. There is a general principle that, in civil non jury trials, in the absence of special circumstances, a successful party has a reasonable expectation of obtaining an order for costs in its favour unless, for some reason connected with the case, a different order is specifically warranted: Donald Campbell & Co v Pollack [1927] AC 732 at 812, cited by McHugh J in Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 569. A departure from that general principle cannot be arbitrary or idiosyncratic, but there is no right to an order for costs, notwithstanding success in litigation: Donald Campbell & Co v Pollack op cit at 811.

21. Costs orders are, in general, compensatory, not punitive. Again, however, the compensatory principle is not absolute. The general discretion conferred on the Court should not be shackled or confined: Donald Campbell & Co v Pollack at 811-812.

22. One circumstance that might disentitle a successful litigant to an order for costs can be the behaviour of the litigant during the course of the proceedings, for example, by taking unnecessary technical points or otherwise inappropriately prolonging the proceedings. That is certainly not the case here. On the contrary, the respondent, through its legal representatives, has behaved impeccably.

23. Another circumstance that may warrant a departure from the general principle is where the unsuccessful party is unrepresented and was not in a position to make a proper assessment of the strength or weakness of his case, and, hence, the risk associated with the litigation. Mr Xiros had the benefit of legal assistance for his complaint to HREOC but he was unrepresented in these proceedings. The issue to be resolved was a technical one: whether there was a sufficient actuarial basis for the exclusion from benefits in the insurance policy of HIV/AIDS derived conditions, an issue on which the respondent bore the onus of proof. That issue could only be resolved by the pursuit of the present application to this Court, and Mr Xiros was not in a position to make a reliable assessment of his prospects of success.

24. A further circumstance that may warrant a departure from the general principle is where the proceedings contain a significant public interest element: Oshlack v Richmond River Council [1998] HCA 11; (1998) 152 ALR 83. All human rights proceedings contain some element of public interest in that the legislation is remedial in character, addressing the public mischief of discrimination. But the legislation confers private rights of action for damages. There will be many human rights proceedings where no sufficient public interest element can be shown: Physical Disability Council of NSW v Sydney City Council [1999] FCA 815.

25. In the present case, the proceedings have called for the interpretation and application of s.46(2) of the DDA, a provision on which I have found no previous judicial consideration. The decision of this Court will have some precedent value and will have implications for other insurance policies; and possibly a large number of similar policies. The proceedings therefore contain a public interest element of substance.

26. In all the circumstances, I have concluded that there should be no order as to costs.

27. Therefore, the only order I make is that the application is dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the Reasons for Judgment of Driver FM.