Hart v Metlife Insurance Limited [2023] NSWCA

Link to Decision

The NSW Court of Appeal (NSWCA) has overturned a recent decision of the NSWSC which had dismissed the whole of the proceedings (including the plaintiff’s TPD claim) on a separate stage 1 determination after finding that a life insurer had not breached its duties (Hart v Metlife Insurance Limited [2023] NSWCA).

The decision of the primary judge considered here was noteworthy in that it rejected the notion that life insurers are under an ongoing obligation to ‘reconsider’ decline decisions upon request by an insured. The primary judge’s conclusion in that regard was not disturbed by the NSWCA.

The appeal decision nevertheless provides guidance on the application of the two stage process utilised by courts when examining a life insurer’s decision in opinion based TPD definitions.

Key Takeaways

• The two stage process used in assessing whether an insurer has breached the duty of good faith and fair dealing was endorsed by the NSWCA. That is, Stage 1 is directed to whether the insurer’s opinion was formed in accordance with those duties and if not, the decision has no contractual effect. Stage 2 then requires the court to form its own opinion on whether or not the relevant TPD definition is satisfied.
• The two stage process is only applicable where an insurer’s decision requires the formation of an opinion. Decline decisions that are based on a question of fact, are not subject to the two stage process.
• Where an insurer has not formed an opinion on TPD but rather declined a claim based on coverage or the qualifying period having not been met (i.e. questions of fact), its decision is not subject to the two stage process. In other words, there is no stage one issue to be determined in those circumstances because no opinion on incapacity has been formed.
• In circumstances where the insurer’s decision and the lower courts’ adjudication of that decision did not consider or determine the ultimate issue of whether or not the plaintiff is TPD as alleged, the whole of the proceedings (so long as they include relief by payment of the TPD benefit) will not be disposed of.
• Absent a binding compromise between the parties, the Court has power to overturn orders otherwise made by consent where such orders do not follow from the findings of the Court.

Background

Ms Hart was insured under a group life policy containing a TPD definition with the usual two limbs:

• first, that the insured member be absent from work for six consecutive months due to illness or injury; and
• second, that the insurer be satisfied that the member has become incapacitated to such an extent that he or she is unlikely ever to work again in suitable employment.

The Insurer’s policy terminated on 30 September 2011 and was replaced by a policy issued by a different insurer. The Insurer, however, remained ‘on risk’ for TPD claims arising from an injury or illness which had caused a member to be ‘not at work’ on 30 September 2011.

There was no dispute that Ms Hart was ‘not at work’ on 30 September 2011 and then absent from work for a six-month period between December 2014 and June 2015. The Insurer denied that it was on risk for the TPD claim because it was not related to the back injury that had caused Ms Hart to be ‘not at work’ on 30 September 2011. Ms Hart claimed that she was ‘not at work’ on that date because of her back injury and psychological illnesses, both of which caused her to become TPD.

The lower Court allowed a separate hearing to determine three questions which essentially examined whether the Insurer’s failure to reconsider Ms Hart’s TPD claim involved a breach of its good faith duties. The primary judge found that the Insurer’s conduct did not breach those duties, and by consent of the parties, dismissed the whole of the proceedings. This included dismissal of the relief sought by Ms Hart for adjudication of the Insurer’s liability to pay the TPD benefit.

On appeal, Ms Hart challenged the lower court’s findings on those separate questions and (following a request by the Court after close of submissions), the order dismissing the proceedings as a whole. The appeal primarily dealt with the following issues:

• whether the primary judge’s answers to the separate questions could have resulted in a dismissal of the whole of the proceedings (including the claim for the TPD benefit); and
• whether the primary judge erred in disposing of the whole of the proceedings and whether the parties’ consent to the dismissal was binding on the Court.

Judgment – Key Findings

The appeal was allowed on the basis of the Ms Hart’s amended appeal ground challenging the orders dismissing the proceedings as a whole. Ms Hart argued, and the CoA accepted, that the proceedings should not have been dismissed in circumstances where the primary judge had not determined the substantive issue in dispute, being whether the Insurer was on risk for the claim and if so, whether Ms Hart met the TPD definition, thus entitling her to a benefit under the Policy.

The Court of Appeal found that:

1. The Insurer’s decline decision did not turn on the formation of an opinion on the requisite level of incapacity (ie under the second limb of the TPD definition). Rather, the claim was declined on the basis that the first limb was not satisfied because Ms Hart was not absent from work for the required period due to any injury or illness for which the Insurer remained on risk. In those circumstances, the usual ‘two stage’ approach to adjudicating a life insurer’s opinion on incapacity did not come into effect.
2. The question of whether the Insurer was on risk for the claim was a question of fact to be determined by the Court having regard to the medical evidence on what caused Ms Hart to be ‘not at work’ on the relevant date. It followed that as the separate questions were directed to alleged breaches of duty by the insurer in its handling of the claim (i.e. refusal to reconsider) rather than the coverage/TPD issue, the answers to those questions could not dispose of the substantive claim for a TPD benefit.
3. Because the determination of the separate questions did not dispose of the TPD claim itself, the order dismissing the whole of the proceedings could not be upheld unless it was part of a binding compromise between the parties, such as a settlement agreement. There was no such compromise agreement here such that the parties’ consent to the orders did not cure the error in the dismissal of the proceedings. Ms Hart ‘could not be denied the opportunity to have her pleaded claim dealt with by the Court on its merits’.

Accordingly, the proceedings were remitted to the NSWSC for determination of the substantive aspects of Ms Hart’s claim for payment of a TPD benefit by the Insurer under the relevant policy.

Implications

Life insurers are often faced with threshold factual issues such as whether they are on risk for a claim, eligibility of an insured member or satisfaction of a qualifying period under a TPD policy.

This judgment highlights that in opinion based TPD definitions, a decision based on such preliminary questions does not invoke the two stage adjudication process, which is only enlivened once an opinion on the requisite level of incapacity has been formed.

Although not an issue in this case, insurers would be well served continuing to strive for impeccable assessment of claims, supported by robust evidence and correspondence. With the two stage TPD process firmly endorsed by the courts, an insurer forming its opinion fairly and reasonably can succeed at Stage 1 and avoid the court considering the issue of TPD for itself.