Resolution Life Australasia Limited v Mitchell (FCA 2024)

The Federal Court’s decision in Mitchell is an important decision that highlights AFCA’s obligation to give the parties an opportunity to respond to any important issues in dispute, particularly between a Recommendation and Determination. The Federal Court decision should help ensure that AFCA complies with its procedural fairness obligations and, where it fails to do so, insurers can consider potential avenues of appeal having regard to the decisive judgment in Mitchell on this point.

The judgment also contains a useful analysis regarding the proper construction of the eligibility criteria and the “At Work” test and its interaction with the duty of utmost good faith in finding that AFCA misconstrued the way such provisions operated in the circumstances of this case.

Key Takeaways

1. AFCA is required to provide the parties with an opportunity to make submissions or provide further evidence on issues central to the dispute.
2. Section 13 of the Insurance Contacts Act 1984 (the ICA) cannot be applied by AFCA to find a person is eligible for cover where the terms of the policy do not otherwise provide cover.
3. AFCA’s Determination must comply with the terms of the Policy and it cannot rewrite the policy.

Background

Resolution Life (the Insurer) and AMP Superannuation (the Trustee) were parties to a group life insurance policy (the Policy) covering certain employees of participating employers.

Mr Mitchell was employed by the Department of Defence (the Department) and was dismissed from this employment in October 2009. In December 2009, he lodged a worker’s compensation claim and claimed he suffered a mental health disorder during his employment and subsequent dismissal. Comcare (the Department’s insurer) accepted the claim in April 2011 and made payments pursuant to the Safety, Rehabilitation and Compensation Act 1988 (Cth) (the SRC Act).

In January 2016, Comcare found Mr Mitchell was not entitled to further compensation payments. Mr Mitchell disputed Comcare’s decision and lodged an application with the Administrative Appeals Tribunal (AAT) in March 2016.

Mr Mitchell was then offered employment with Nova Professional Services (Nova), a privately-owned Defence contractor. Mr Mitchell commenced work with Nova on 23 May 2016. Nova was a participating employer under the Policy.

Mr Mitchell’s employment with Nova required him to reactivate his security clearance via the Department. On 14 June 2016, the Department rejected the application to reactivate Mr Mitchell’s security clearance as the time limit for reactivation had expired. The Department advised that Mr Mitchell would need to undergo a “full vetting process” to obtain his security clearance.

Mr Mitchell asserted the Department was “interfering” with his employment and the request to renew his security clearance aggravated his condition. Mr Mitchell resigned from his employment with Nova. He was employed with Nova between 23 May 2016 and 17 June 2016. Nova forwarded Mr Mitchell’s application to join the fund to the Trustee on 26 July 2016.

On 4 November 2016, the AAT delivered a decision and found that Mr Mitchell had an ongoing entitlement to compensation benefits. Following the decision, Comcare provided Mr Mitchell with details of his payments, which covered his employment period with Nova.

Mr Mitchell’s Claim under the Policy

In June 2018, Mr Mitchell lodged a claim with the Insurer under the Policy seeking TPD and income protection benefits. The Insurer found Mr Mitchell did not meet the definition of “At Work”, which was defined in the Policy as:

“At Work means:

(a) in respect of an Employee, in the service of the Participating Employer, actively performing all that Employee's normal duties of his or her usual occupation during that Employee's normal work hours and not being in receipt of or entitled to claim income support benefits from any source including, without limitation, Workers' Compensation…”
 
The Insurer declined the claim on the basis that Mr Mitchell was “entitled to claim… Comcare benefits and you were in receipt of funds during that period, albeit retrospectively meaning that you did not meet the policy definition of “At Work”, meaning that you were not entitled to Automatic Cover under the policy”. The Trustee agreed with the Insurer’s decision.

Mr Mitchell’s lodged a complaint with AFCA on 6 November 2020.

The AFCA Complaint

The Insurer argued that Mr Mitchell did not meet the definition of “At Work”. In response, Mr Mitchell argued that he was not entitled to receive compensation payments while employed with Nova as he was fully employed.

In June 2021, AFCA delivered a Recommendation in favour of the Insurer and Trustee and found that Mr Mitchell was not “At Work” as the AAT had found he was entitled to receive compensation payments while employed with Nova.

Mr Mitchell did not accept the Recommendation. AFCA advised the parties the dispute would proceed to a Determination and invited the parties to provide any further submissions. Further submissions were provided in relation to the “At Work” definition and the date for assessment. The Trustee stated that Mr Mitchell’s application to the fund was made on 26 July 2022 (after he ceased work with Nova) and argued that Mr Mitchell was not “At Work” on 26 July 2016.

AFCA delivered a Determination on 16 March 2022 (the Determination) in favour of Mr Mitchell. AFCA found the decisions to decline the claim were unreasonable on the following grounds:

1. It was a breach of utmost good faith to decline the claim because Nova sent the application after Mr Mitchell had ceased work with Nova;
2. After performing its own calculations under the SRC Act, AFCA found that Mr Mitchell was not entitled to receive Comcare payments while employed with Nova as Comcare’s liability was nil during his employment; and
3. Mr Mitchell was not in receipt of compensation payments while employed with Nova as the payments were not paid until November 2016.

AFCA remitted the matter back to the Insurer and Trustee for re-assessment (with specific directions). The Insurer appealed to the Federal Court seeking to set aside the Determination. Mr Mitchell opposed the appeal.

The Appeal

The Federal Court considered five appeal grounds covering two broad questions, being:

1. Did AFCA deny the Insurer and Trustee procedural fairness?; and
2. Did AFCA err in finding a breach of the duty of utmost good faith and finding that Mr Mitchell was covered under the Policy?

Breach of Procedural Fairness

Justice Wigney noted the AFCA Rules required it to provide procedural fairness to the parties. His Honour found that AFCA’s decision that s13 of the ICA applied and was breached was a critical finding. The fundamental difficulty his Honour identified was that Mr Mitchell did not mention s13 of the ICA in submissions and AFCA did not flag that this issue would be important to its Determination. His Honour noted “AFCA said nothing whatsoever about the application of s13 of [the ICA] in its preliminary assessment and recommendation, or in any of its communications with the parties.”

Given the operation of s13 of the ICA was a “critical issue” in AFCA’s Determination, his Honour found that procedural fairness required AFCA to raise that issue and give the parties an opportunity to be heard. In his Honour’s opinion, there was no doubt that if given the opportunity, the Insurer would have made submissions on s13 of the ICA, including a submissions that s13 of the ICA could not apply as Mr Mitchell was not a party to the Policy. There was a realistic possibility that a different decision could have been made if the Insurer had an opportunity to provide submissions.

In relation to the calculations performed by AFCA under the SRC Act, his Honour stated:

“None of the communications emanating from Mr Mitchell or AFCA following AFCA’s preliminary assessment suggested that the precise calculation, pursuant to s 19(2) of the [SRC Act], of the Comcare benefits Mr Mitchell was entitled to, taking into account the salary or wages he earned while employed at Nova, was an issue, let alone a critical issue, in the complaint.”

In the absence of AFCA flagging this issue, his Honour found the Insurer was entitled to assume it did not need to provide submission on this issue.
   
The Court found that AFCA had breached its procedural fairness obligations by failing to provide the Insurer with an opportunity to make submissions on s.13 of the ICA and the calculation of benefits under the SRC Act. This resulted in the Determination being set aside by the Court and remitted back to AFCA for consideration according to law.

Utmost Good Faith and Eligibility – Did AFCA misconstrue the Policy?  
   
His Honour considered there was a “fundamental problem” with AFCA’s application of s13 of the ICA in that Mr Mitchell:

“… could only have been a third party beneficiary under the Policy if he had insurance cover under the Policy, and he could only have had insurance cover under the Policy if he met the eligibility criteria for Automatic Cover in cl 2.2(b) of the Policy….”

In an attempt to circumvent the difficulty that Mr Mitchell was not “At Work” on the date his application for cover was lodged, AFCA misapplied s13 of the ICA. The Court found:

“Section 13 cannot be applied so as to effectively make or deem Mr Mitchell to be a party to the Policy so that s 13 can then apply to him and the Insurer as parties to the Policy”.

Further, AFCA’s reasoning effectively re-wrote the eligibility provisions in the Policy and his Honour noted s.1055(7)(c) of the Corporations Act 2001 provided that AFCA could not make determination that was contrary to the terms of the contract.

It was also found that AFCA misapplied the Policy by conducting its own calculations of the Comcare benefits while Mr Mitchell was employed by Nova. The Court found this approach was erroneous as the relevant date for determining eligibility was 26 July 2016, when Mr Mitchell was not working. In addition, AFCA’s calculations under the SRC Act were mathematically incorrect.

The Court found that each of the five appeal grounds raised by the Insurer had been successful. AFCA’s Determination was set aside and remitted back. Mr Mitchell was ordered to pay the Insurer’s costs of the appeal.