Key Takeaways

The NSWCA has reiterated the Courts’ willingness to intensely scrutinise life insurer's TPD decision letters.

Brief facts

• The plaintiff was a former NSW police officer who sought payment of a TPD benefit due to suffering PTSD and related psychological conditions.
• The plaintiff was 28 at the date for assessment and had prior education, training or experience as an office assistant and cinema attendant and had completed 18 months of an Arts degree before joining the police force.
• The relevant definition was concerned with whether the plaintiff was unlikely ever to engage in relevant work, as to which she was to provide proof to the insurer’s satisfaction.
• The insurer declined the claim on the basis that the plaintiff was ‘likely to be able to return to work at some point in the future, external to the NSW Police Force’ in identified administrative and sales roles.

The trial judge found that the insurer failed to fulfil its contractual duties in dealing with the plaintiff’s claim and its determination was therefore void, and that she satisfied the TPD definition at the relevant date, and made orders against the insurer for payment. We discussed his Honour’s decision in our article in the April 2020 edition of the Bulletin.

The insurer appealed the decision to the NSWCA. The issue on appeal was whether the trial judge erred in concluding that the insurer breached its contractual obligation to assess the claim in good faith and to act fairly and reasonably in making that assessment. It did not separately challenge the trial judge’s assessment of total and permanent disablement.

Judgment

By a majority of two to one, the NSWCA upheld the decision of the NSWSC. It was central to the majority’s decision that the plaintiff’s cover was held through her superannuation fund. The Court quoted Commissioner Hayne’s observation in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that the majority of life insurance policies on issue in Australia are held through superannuation funds. It was held that:

The fact that beneficiaries who rely on such cover through the intermediary of a superannuation fund have no entitlement to challenge the merit of decisions of the insurer in court suggests that, if not strict scrutiny, at least careful scrutiny of the evidence as to whether the insurer has properly understood and fairly complied with its contractual obligations should be applied.

It is unclear what the Court intended by the statement that beneficiaries under group cover have no entitlement to challenge the merit of decisions of the insurer in court.

Specifically, the majority held that it was unfair to rely on certain opinions of particular doctors suggesting at one point in time (without reference to the words of the TPD definition) that the plaintiff would potentially be able to work in a job outside the police force, when they provided later opinions couched in terms of the TPD definition to the opposite effect.

Similarly, statements that the plaintiff had a permanent impairment but ‘may be able to return to some form of work with a different employer’ were held by the majority to be ambivalent (in that it was unclear whether ‘may’ meant there was or wasn’t any real chance that the plaintiff would do so). The majority upheld the decision of the trial judge that it was unfair to rely upon this ambivalent answer as adverse to the plaintiff.

The majority also cautioned that ‘The importance given to the most nearly contemporaneous opinions was permissible, but should have been accompanied by an acknowledgment that many medical conditions take time to stabilise’. Similarly, in his dissenting judgment, Macfarlan JA stated ‘The date the opinion was expressed might not have been of crucial significance but it was at least a matter the appellant was entitled to take into account’.

The majority acknowledged that the insurer was entitled to be sceptical as to whether the plaintiff was unlikely ever to return to work. ‘Her youth, together with the long period over which that assessment needed to be made, warranted a level of scrutiny of the available evidence which might not otherwise have been justified’. However, the majority emphasised the importance of insurers applying that scrutiny consistently, and that objections should not be raised to reports supportive of a claim when the same objections would apply to reports which did suggest a reasonable possibility of future employment. For example, if the insurer was to reject some opinions on the basis that they were not expressed in the terms of the policy definition, it was held to be unfair to rely upon other evidence which was not so framed.

In his dissenting judgment, Macfarlan JA held that having regard to the relevant medical opinions, the insurer was entitled not to be satisfied of the plaintiff’s permanent disability.

Macfarlan JA noted the underlying principle that ‘a decision may be set aside if the process of consideration underlying it was not undertaken reasonably and fairly, even if the outcome itself is not also shown to have been unreasonable on the material before the insurer’. The plaintiff’s challenge to the insurer’s decision on appeal was directed at the process by which it was arrived at, rather than the outcome as such.

His Honour held that where (as here) there were a series of medical reports referred to in an insurer’s decision correspondence that went to the failure to form a view that the claimant was TPD, the fact that part of one of those reports read in isolation was potentially capable of being described as equivocal or ambiguous was not sufficient to invalidate the insurer’s reasoning. His Honour stated:

The medical opinions then referred to, including that of Dr George, were followed by the conclusion expressed in respect of each policy that the appellant had ‘not formed’ the required opinion as to permanent incapacity. None of the opinions referred to needed on its own to establish the basis for the appellant’s non-formation of that opinion. Rather, reading the letter logically and reasonably, the descriptions of the opinions were given to provide some, but not necessarily conclusive, support for that conclusion.

As the issue to be addressed by the appellant was whether it was, acting reasonably and fairly, positively satisfied of the respondent’s permanent disability, the opinion of Dr George, who had assessed the respondent at about the date for assessment, that the respondent ‘at some time in the future… may be able to return to some form of work with a different employer’ was supportive of the appellant’s non-satisfaction. Particularly is that so when Dr George expressed his opinion in response to a question that specifically asked him about the policy issue of permanent incapacity. Because Dr George was apparently not satisfied of the relevant matter, the appellant, if attention is at this stage confined only to Dr George’s opinion, was similarly entitled not to be so satisfied.

In these circumstances, I respectfully disagree with the primary judge’s view that the appellant ‘should not have relied on this sentence, as it did, but should have gone back to Dr George and asked him what he really meant’.

It was important, in his Honour’s view, for the Court not to read part of a single report in isolation and seize upon it to invalidate an insurer’s decision where the words in question might be regarded as equivocal, but there is other evidence to similar effect (including other evidence authored by the same expert) which lends weight to a body of evidence which, read as a whole, makes it reasonable for the insurer not to be satisfied that a claimant is TPD.

His Honour also reiterated the principle that an opinion as to unlikelihood of a return to work expressed to relate to the ‘foreseeable future’ was not ‘evidence directly supporting’ the view that the plaintiff satisfied the TPD definition, which is concerned with whether a claimant is unlikely ever to do so.

Implications

Clearly, insurers’ decisions on TPD claims will continue to be closely scrutinised. It will be important for insurers not to dismiss material supportive of a claim on the basis that they are not framed in the precise terms of the TPD definition, if the insurer relies upon other opinions that also do not do so.

Insurers should also consider whether it is necessary to clarify any actual ambiguity in medical opinions, for example, where opinions are expressed to the effect of a somewhat noncommittal ‘may’ formulation.

It is also clear from the majority judgment that where doctors have provided different opinions at different points in time, an insurer acting fairly and reasonably should engage with all of those opinions rather than only those that support a particular proposition.

The case continues a recent theme that evidence contemporaneous to the date for assessment is not necessarily the best evidence of a claimant’s future unlikelihood ever to return to work, at least in the case of chronic conditions, but nor is it necessary to disregard it.

Finally, in a plain manifestation of ‘reasonable minds reasonably differing’, it is evident that even the judges of the NSWCA differ in their interpretation of the decisions of life insurers, and the probative value of the material that underlies those decisions.