2012 Annual Review of Life Insurance Law by TurksLegal

2012 Annual Review of Life Insurance Law Lisa Norris TurksLegal

Mickovski v Financial Ombudsman Service Limited & Anor [2012] VSCA 185 • Jurisdiction of the Financial Ombudsman Service (FOS) • Judicial review of Determinations and Rulings of FOS • Actions against FOS by complainants alleging breach of contract

Mickovski The plaintiff was diagnosed with ankylosing spondylitis after he slipped on leaking oil at work February 1995. He also suffered from hypertension. He ceased work in September 1998 and has never returned to work. SCI benefits were paid with respect to the plaintiff. Payable to age 65, ceasing on TPD. Plaintiff made a TPD claim in April 1999, and in July 1999 MetLife determined him TPD, and ceased SCI benefits.

Mickovski • In 2007 the SCI Policy was rectified to include words to reflect the agreement with the Policyowner that SCI ceased on the claimant being objectively TPD. • The only difference between this definition and the TPD definition in the TPD Policy was the absence of the words “… having provided proof to our satisfaction that the Member has become incapacitated [etc]” .

Mickovski • In 2008 (9 years later) the plaintiff disputed MetLife’s subjective decision in July 1999 that he was TPD. • The plaintiff argued that he was not objectively TPD, therefore entitled to ongoing SCI benefits. • MetLife reviewed the evidence and maintained that the plaintiff was TPD.

Mickovski • A complaint was made by the plaintiff to FOS on 3 November 2008 (9 years after TPD decision and cessation of SCI benefits), seeking reinstatement of SCI benefits on the basis that he was not objectively TPD. • FOS determined that the complaint was lodged more than 6 years after the plaintiff became aware of ‘all the relevant facts’ for the purposes of clause 14.1(p) of the applicable Terms of Reference (1.7.08).

Mickovski • Plaintiff commenced proceedings in Supreme Court of Victoria seeking: • A declaration that FOS breached its Terms of Reference dated 1 July 2008 and Constitution (ie, breach of contract); • Alternatively, ‘judicial review (certiorari or mandamus)’.

Mickovski - Judicial review â&#x20AC;˘ Datafin principle: A principle of English case law - allows for judicial review of decisions of private dispute resolution bodies not exercising statutory powers where they were performing a public duty or exercising a power with a public element: â&#x20AC;˘ R v Panel on Take-overs and Mergers; ex parte Datafin Plc [1987] 1 QB 815

Mickovski – Judicial review • Court of Appeal: the Datafin principle was appealing “in face of increasing privatisation of governmental functions in Australia”. • However, unnecessary for the Court to make a decision on the application of Datafin, because FOS was not exercising a public duty or function involving a public element, as its jurisdiction was consensually invoked by the parties to the complaint.

Mickovski - Tripartite contract? • The plaintiff’s alternative argument: a tripartite contract between himself, MetLife and FOS arose when he lodged the complaint. • Pagone J and Court of Appeal: Upon making a complaint, the plaintiff became bound to comply with the Terms of Reference to the extent that they applied to him. • Correspondingly, he became entitled to expect the Rules to be applied by FOS correctly. • Consideration?

Mickovski - Breach of contract? â&#x20AC;˘ Pagone J: there was no breach of contract by FOS; the differences between the subjective and objective TPD definitions were no more than theoretical, so rectification was not a relevant fact for the purposes of the Rule. â&#x20AC;˘ The Court of Appeal found that the Panel Chair had erred in law in his construction of clause 14.1(p) of the Terms of Reference; The correct interpretation of the SCI Policy [ie, the rectified Policy] was a relevant fact for the purposes of clause 14.1(p).

Mickovski - Breach of contract? • Clause 15.3: • in the event that a decision on jurisdiction was made and challenged, it would then be determined by the Panel Chair (as occurred here), whose decision would be final [even if incorrect]. • “were it not for clause 15.3 of the Terms of Reference, the Panel Chair’s decision would be reviewable as a matter of contract”. • The Appeal was dismissed.

Prasad v AMP Life Limited; PRP v AMP Life Limited [2012] NSWSC 1076 • Claims by Ms Prasad and PRP for income protection benefits and TPD benefits of $1 million. • AMP declined both claims and avoided both policies based on Ms Prasad's fraudulent non-disclosure of certain information. • AMP also denied that Ms Prasad was totally and permanently disabled.

Prasad • AMP sought orders (“Markus orders”) that the requirement that it serve its evidence be waived in respect of certain evidence described in an affidavit confidentially read by the Court. • In the usual course, a defendant must serve on a plaintiff all the evidence on which it relies prior to the commencement of the hearing. • Some good reason must be shown that the usual procedure should not be followed.

Prasad • Principles the Court should consider in deciding whether to make Markus orders: • whether the making of the orders would promote the speedy determination of the real issues in the proceedings; • whether the making of the orders would promote the just, quick and cheap disposition of the proceedings; • whether the dictates of justice will be served by the making of the orders;

Prasad â&#x20AC;˘ whether the material would be of assistance only to the withholding party in meeting the case of the deprived party; â&#x20AC;˘ whether the material would assist the deprived party in the formulation and presentation of his or her own case; â&#x20AC;˘ it would normally be unjust to withhold material which might assist the deprived party;

Prasad â&#x20AC;˘ whether there is a risk that the material, if made available, would tend to tempt the deprived party to tailor his or her evidence, or at least consider doing so; â&#x20AC;˘ it is inappropriate for the Court to make any assessment as to the honesty of the party against whom fraud is alleged; â&#x20AC;˘ there is a need to be satisfied that there is some real basis for suspicion of fraud;

Prasad

â&#x20AC;˘ the likely risk of adjournment that withholding the material may cause; and â&#x20AC;˘ the impact on the prospects of settlement if the material is withheld.

Prasad • Some of the evidence could be of assistance only to AMP in meeting the case made by Ms Prasad. • The material would not advance Ms Prasad's nor PRP's case. • This material, if made available, would "tend to tempt [Ms Prasad] to tailor [her] evidence or at least to consider doing so".

Prasad • The interests of justice, and the just, quick and speedy determination of these proceedings required his Honour to make the orders sought by AMP in respect of some of the evidence. • The documents were to be produced to PRP, subject to PRP’s director giving to the Court an undertaking to ensure that such material be kept confidential.

Prasad â&#x20AC;˘ One report by Dr Yvonne Skinner, a consultant physiatrist, contained material that, to some extent, supported Ms Prasad's case, including a provisional diagnosis of "major depression" and: "Without treatment I do not think that she would be able to return to work in the foreseeable future." â&#x20AC;˘ It was not considered appropriate, or just, to withhold this report.

Prasad – Subpoenas • AMP also sought an order that the usual requirement that subpoenas issued by AMP be served on the plaintiffs be dispensed with, or alternatively postponed until the conclusion of the plaintiffs' case at trial. • It would require extraordinary circumstances to warrant the making of orders like this before production by the proposed subpoenaed parties. • His Honour declined to make an order dispensing with the requirement for service of the subpoenas (allowed AMP first access).

Gerasimov v Allianz; Suncorp; Onepath [2012] NSWDC 118 • In 2007 Mr Safronov effected three life insurance policies, each in the sum of $400,000 with each Defendant insurer. • Mr Safronov left Australia in October or November of 2009. • He was reported missing by Mr Zhirnoklev, with whom he was staying in the Ukraine, on 8 March 2010. • Mr Zhirnoklev attended a morgue in the Ukraine and identified a body as that of Mr Safronov. He is said to have died on 10 March 2010.

Gerasimov • The plaintiff, Mr Gerasimov, is Mr Safronov’s executor. • Mr Zhirnoklev and the plaintiff were beneficiaries under the will of Mr Safronov. • There was nothing in Mr Safronov's estate other than the life insurance policies totalling $1,200,000. • Claims were made under each of the policies in late March 2010.

Gerasimov • A Ukrainian death certificate was obtained which included photographs and measurements of the person said to be the deceased. • The Defendant insurers were satisfied that the person shown the photographs was not the deceased: • That person was a different height and otherwise not physically identical to nor consistent with Mr Safronov (eg he looked some 10 years older than Mr Safronov).

Gerasimov â&#x20AC;˘ The executor then served a different report with a certificate containing photographs of a different person with different measurements and a different age. â&#x20AC;˘ The Plaintiff alleges that that person was Mr Safronov.

Gerasimov â&#x20AC;˘ The defendants allege: (1) Mr Safronov was not dead at any relevant time; (2) He knew that those acting on his instructions or in concert with him would make a claim against each of the insurers; (3) That a person or persons with whom Mr Safronov was acting knew the death had not occurred; and (4) The intent of the scheme was to defraud the insurers.

Gerasimov • The insurers resisted inspection of investigation documents, based on the principles in: • Markus; and • Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; (2009) 78 NSWLR 265.

Gerasimov • The material in issue might throw light on: • whether Mr Safronov is or was still alive; and • the existence of the “scheme”. • The documents may also be necessary in the crossexamination of those concerned with the authenticity of the relevant certification.

Gerasimov

â&#x20AC;˘ The material over which privilege was claimed did not assist the plaintiff's case. â&#x20AC;˘ The Defendants were not required to make disclosure of the investigation documents.

Stevens v CMLA & Commonwealth Financial Planning Ltd [2012] NSWDC 94 • The plaintiff had held a policy of life insurance with Westpac since 2003, with a death benefit of $298,511. • After a meeting with a financial planner employed by Commonwealth Financial Planning (CFP), he applied for and obtained a similar life insurance product from CommInsure (life + trauma, at the same premium); • He then cancelled his Westpac policy on 13 October 2010.

Stevens

• The plaintiff was diagnosed with pancreatic cancer, a terminal illness, on 1 September 2011 and submitted a claim to CommInsure on 10 November 2011. • CommInsure avoided the policy on 23 December 2011 based on non-disclosures with respect to the plaintiff’s health at the time of the Application.

Stevens – non-disclosures and misrepresentations • The plaintiff described his health as “excellent” (from the options excellent, good, average and poor) whereas in fact, objectively that was not the case: • 20 year history of Hepatitis C • Counselled about alcohol consumption • raised liver function test results • medical records disclosed an episode of having coughed up blood

Stevens – non-disclosures and misrepresentations • If the above facts had been ascertained or disclosed, CommInsure would not have accepted the plaintiff’s application, or offered him a policy of life and trauma insurance at all. • CommInsure was justified in avoiding the policy in the circumstances. • Verdict and judgment for CommInsure.

Stevens – claim against adviser • Plaintiff sought damages from the adviser to the value of the cancelled Westpac policy. “Mr Galloway understood that as a financial planner, he was providing Mr Stevens with financial advice that involved a financial benefit to his employer and a financial risk to Mr Stevens. A relevant duty of care, including a fiduciary duty, arose in the circumstances”.

Stevens – duty of care of adviser • The content of the duty included: “the duty to ensure the plaintiff was adequately informed of the consequences of potential material non-disclosure of health and related matters, which an underwriter …would regard as being material to the risk, in circumstances where he was being encouraged to transact a new policy of life insurance that was intended to be followed by cancellation of the preexisting policy, once CML had accepted the new proposal”.

Stevens – duty of care of adviser • There was also a duty “to ensure the proponent understood the importance of the questions and provided full and considered answers to the questions …” • Beyond the contents of the s22 notice? • Held: These duties had been breached in the circumstances.

Stevens – evidence • The plaintiff was in palliative care at the time of the hearing. • His evidence had been taken on commission by another judge. The plaintiff’s evidence was transcribed but was not video-taped. • The adviser’s evidence was based upon his usual practice and documents rather than an actual recollection of the dealings in question with the plaintiff. • Plaintiff’s evidence was accepted.

Stevens - Electronic Underwriting

• The CommInsure policy was applied for via a system known as “Write-Away”, an automated assessment system. • Applications were only referred to an underwriter if disclosures were made.

Stevens - Electronic Underwriting â&#x20AC;˘ Described as: â&#x20AC;&#x153;an on-line application process that provided little or no opportunity for an unsophisticated person such as Mr Stevens to reflect on the significance and accuracy of what was being put forward on his behalf to the insurer before he signed the document and submitted it for approvalâ&#x20AC;?.

Stevens - Electronic Underwriting • The plaintiff was in his Honour’s view: “not given a proper opportunity to consider the ramifications of the proposal document he was signing [which] had the potential to materially alter and adversely affect the entitlement to make a claim on a life insurance policy transacted in such circumstances”. ~

Savelberg v United Super [2011] NSWSC 1482 • The plaintiff left school at 14 and worked as a labourer. He suffered from dyslexia and reading difficulties. • The plaintiff suffered injuries, including hypersensitivity, when his legs were struck by falling steel components at work on 9 May 2007. • The hypersensitivity prevented the plaintiff from wearing shoes.

Savelberg • The plaintiff claimed a TPD benefit on 26 February 2008. • On 23 September 2009, the insurer declined the claim. • Following requests for reconsideration and additional evidence, the claim was admitted on 24 June 2011.

Savelberg • The plaintiff sought interest on the TPD benefit payment from the date of first declinature - 23 September 2009 - to the date of payment. • Section 57 Insurance Contracts Act 1984 : • Where an insurer is liable to pay to a person an amount under a contract of insurance, interest is payable from “the day as from which it was unreasonable for the insurer to have withheld payment of the amount” to the date of payment.

Savelberg • His Honour did not follow the methodology in the “Bankstown Football Club” line of life insurance cases (awarding interest from a date shortly after submission of the claim, eg 3 months from lodgement). • His Honour undertook a substantive analysis of the reasonableness of the decisions to decline the claim, based on the evidence before the insurer at those times.

Savelberg • The reason for the first declinature was the medical opinion that: “if not now, at some time in the future, [the plaintiff] may be able to return to work as [a forklift driver or storeman], process worker, mobile plant operator or retail sales assistant”. • The plaintiff alleged that in light of all the evidence before the insurer at the time of that decision, the decision was unreasonable.

Savelberg • The evidence with respect to the hypersensitivity revealed: • Dr Walker had found no neurogenic change, thought the hypersensitivity was of orthopaedic origin, and that the plaintiff had become deconditioned from chronic pain; • Miss Thompson, podiatrist, suggested the plaintiff may be suffering from reflex sympathetic dystrophy syndrome (RSDS);

Savelberg

â&#x20AC;˘ Dr Deveridge referred to the development of profound neuropathy or neuralgia, but nerve conduction studies did not show major nerve damage; he referred to disabling neuropathic pain, without identifying a cause; â&#x20AC;˘ Dr Sun said there were no scan features of RSDS but provided no diagnosis;

Savelberg • Dr Harvey-Sutton: • Found no objective signs that the condition was permanent or significant, and could identify no medical reason for the disability indicative of TPD. • On clinical examination, considered the hypersensitivity to be temporary and may settle sooner with a formal desensitisation program. • Did not identify medical reasons for her expressed view that the hypersensitivity was temporary.

Savelberg

• The evidence with respect to the plaintiff’s suitability to return to work in various roles was all contingent upon his ability to wear shoes, “without which all types of employment and all working environments were barred to him”.

Savelberg • Held: the overall weight of medical evidence as at 23 September 2009 supported the conclusion that the plaintiff was unlikely to ever work in any regular job which he was reasonably fit to perform, if he continued to suffer from the hypersensitivity which rendered him unable to wear shoes. • There was no evidence showing the likelihood of amelioration of his condition. • Nicholas J awarded interest on the TPD benefit payment from 23 September 2009.

For further information, please contact:

Lisa Norris Partner T: + 61 2 8257 5764 lisa.norris@turkslegal.com.au

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