A Newey Approach to Interest under the Insurance Contracts Act By Michael Iacuzzi & Lisa Norris | November 2009 Area of Expertise | Insurance & Financial Services
Summary In Aaron Newey v First Superannuation Pty Ltd & Anor [2009] NSWSC 1100, Rein J found that an insurer’s and trustee’s decisions to defer a TPD claim were reasonably based and declined to award interest and costs in the claimant’s favour. It was found that the proceedings were commenced prematurely. A decision maker can defer assessment of a claim where the claimant is going to undergo treatment or surgery and that treatment or surgery could enable the claimant to return to work within their education, training or experience.
Who Does This Impact? Claims and legal teams of life insurers and superannuation trustees.
What Action Should Be Taken? If there is evidence that the claimant may be able to return to work within his or her education, training or experience after surgery or other treatment, decision makers may consider deferring their decision for a reasonable period until the results of the treatment are known.
Introduction Hannover Life Re of Australasia Ltd (Hannover) and First Superannuation Pty Ltd (the Trustee) admitted a claim for a TPD benefit, after initially deferring their decision to ascertain whether the claimant would recover adequately after surgery to be able to return to work. The claimant alleged that by deferring their decisions, Hannover and the Trustee had unreasonably delayed the assessment of the claim, so were liable for interest and costs. When the decision to defer was made, there was evidence that the claimant would in fact undergo the surgery (which he did ultimately undergo), and that post-surgery the claimant may have been able to return to work within his education, training or experience. Rein J found that in the circumstances, the decision to defer the assessment of the claim was reasonable.
Background Mr Aaron Newey (Mr Newey) was employed as a welder with Emerdyn Pty Ltd (the Employer) and was a member of the Furniture Industry Retirement Superannuation Trust (the Fund), of which First Superannuation Pty Ltd was the trustee. The Trustee had a group life policy with Hannover covering its members for certain benefits, including total and permanent disablement (TPD) benefits. Mr Newey suffered a back injury, and lodged a claim for the TPD benefit on 13 March 2008.
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A Newey Approach to Interest under the Insurance Contracts Act by Michael Iacuzzi & Lisa Norris
On 8 May 2008, Hannover received the Employer’s workers compensation file, which included evidence that Mr Newey was to undergo a disc replacement. At the request of Hannover, the Trustee enquired whether Mr Newey would in fact undergo the disc replacement. Mr Newey’s solicitor advised the Trustee on 30 May 2008 that he would undergo surgery for a disc replacement, but would first undergo hip surgery. In June 2008, Hannover received a report from Mr Newey’s treating specialist (Dr Diwan) which stated that, depending on the outcome of surgery, it was hoped that Mr Newey would return to work 3-6 months after surgery. Hannover decided to defer assessment of Mr Newey’s claim for 6 months until after the surgery had taken place, to ascertain if the anticipated return to work was in fact possible. In August 2008, the Trustee wrote to Mr Newey’s solicitor and advised that the claim would be deferred until after Mr Newey’s surgery. In response, Mr Newey’s solicitor stated (contrary to their letter dated 30 May 2008) that Mr Newey now would not undergo a disc replacement, as it was not approved by the workers compensation insurer. Mr Newey underwent hip surgery in September 2008. On 6 November 2008, Mr Newey commenced proceedings in the Supreme Court of NSW alleging that it was unreasonable to have withheld payment of the TPD benefit. The claim was still the subject of assessment at that time. Mr Newey ultimately had emergency back surgery in February 2009. Mr Newey’s TPD claim was admitted by Hannover and the Trustee in August 2009, after further medical evidence subsequent to surgery was received, and the TPD benefit was paid.
MEDICAL EVIDENCE His Honour noted that the documents provided to Hannover and the Trustee included material that supported a finding that Mr Newey satisfied the definition of TPD. However, he also pointed out that there was material which did not support Mr Newey’s claim, and that the medical evidence therefore painted a confusing picture. His Honour summarised 4 main aspects of the medical evidence which led Hannover to be uncertain prior to commencement of the proceedings that the plaintiff satisfied the definition of TPD, as follows: • • • •
the plaintiff had suffered an injury in 2004 and returned to work after conservative treatment; the evidence indicated that surgery of the lower discs could potentially remedy Mr Newey’s injury; the evidence indicated that Mr Newey had education, training and experience in work other than as a welder; and Mr Newey underwent hip surgery in September 2008.
His Honour observed that it was clear that Mr Newey would undergo the hip surgery, but not clear whether he would undergo the spinal surgery. It was therefore reasonable for Hannover to wait until it was clear whether the spinal surgery would occur, and if it did, to await its outcome.
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A Newey Approach to Interest under the Insurance Contracts Act by Michael Iacuzzi & Lisa Norris
THE DECISION His Honour found that Mr Newey was not entitled to interest under section 57 of the Insurance Contracts Act as he was unable to show that the claim should have been determined in his favour prior to the commencement of the proceedings. The proceedings had therefore been commenced prematurely by Mr Newey. Judgment was entered for Hannover and the Trustee, and Mr Newey was ordered to pay their costs to a maximum amount of $5,000. In capping Mr Newey’s liability to pay costs, his Honour took into account: • • • • • •
The fact that Mr Newey’s claim had been admitted and he had been paid a (relatively small) benefit; His opinion that a proportion of the costs were incurred in the course of assessing the claim (and were not costs of the proceedings); That the evidence did not provide a clear picture of Mr Newey’s treatment; That the amount of interest claimed by Mr Newey was approximately $4,500; That there was a need for proportionality between costs and the amount in dispute; and Except for the claim for interest, the appropriate order would have been for each party to bear their own costs.
ANALYSIS One of Mr Newey’s central arguments was that the workers compensation insurer had refused to pay for the spinal surgery, and therefore Hannover and the Trustee could not take the prospect of surgery into account. His Honour found that this was not supported by the evidence, which indicated that the spinal surgery was a possibility - particularly the correspondence of Mr Newey’s solicitor dated 30 May 2008 which stated that Mr Newey would undergo spinal surgery.
The Test under Section 57 of the Insurance Contracts Act In considering the operation of section 57 of the Insurance Contracts Act, his Honour found that to succeed in arguing that Hannover and the Trustee should have paid the TPD benefit earlier (and hence that he was entitled to interest), Mr Newey needed to establish that prior to admission of the claim in August 2009, Hannover and the Trustee either: • •
in fact held the opinion that Mr Newey satisfied the definition of TPD; or acting reasonably reasonably, ought to have held that opinion.
His Honour ultimately found that Mr Newey had established neither of these things. His Honour did not take the approach recently adopted by other judges in life insurance cases which derives from the unreported decision of Cole J in Bankstown Football Club Ltd v CIC Insurance Ltd (17.12.93), a general insurance case which did not involve a benefit payable upon the formation of an insurer’s opinion. See for example in Sayseng v Kellogg Superannuation Pty Ltd & Anor [2007] NSWSC 583, Triffitt v Australiansuper [2007] NSWSC 1167 and Nino v MLC Limited [2009] NSWSC 400. Please also refer to TurkAlerts - A Case of Interest? TPD Claims and s57 of the Insurance Contracts Act and Income Protection Policies - Is Your Offset Clause Effective?
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A Newey Approach to Interest under the Insurance Contracts Act by Michael Iacuzzi & Lisa Norris
Consideration of Future Treatment The parties accepted as a general proposition that a decision maker could take into account the prospect of surgery which may result in a disability no longer being permanent (see Tower Australia Ltd v Farkas (2005) 64 NSWLR 253). However, Mr Newey argued that it was unreasonable for Hannover to defer making a decision pending future treatment which may not occur. He asserted that, as at 8 May 2008 (upon receipt of the workers compensation file), Hannover should have reached a decision on the basis that the spinal surgery was not likely to proceed. His Honour found that to succeed in this allegation, Mr Newey was required to provide clear evidence that the spinal surgery (as distinct from the hip surgery) would not take place or was unlikely to occur. He did not do so. His Honour also found that Hannover was required to consider the prospects of recovery ‘at any time in the future’, not just ‘for the foreseeable future’.
Procedural Fairness Mr Newey alleged that Hannover did not provide his solicitor with a copy of all the documents obtained from the workers compensation insurer after the commencement of the proceedings, before his claim was admitted. He asserted that documents should have been forwarded to him throughout the assessment of the claim, rather than at the conclusion of the assessment process. It was found that this allegation was not open to Mr Newey, as it was not pleaded in the Statement of Claim. In any event, the evidence in the workers compensation documents merely repeated the evidence which Mr Newey had access to, and there was no evidence that Hannover placed weight those documents. Therefore, Mr Newey was not prejudiced by not having access to all the documents on the workers compensation file earlier, before his claim was admitted.
Date for Determining When a Decision Ought to Have Been Formed His Honour found that to succeed, the plaintiff would need to prove that Hannover and the Trustee should have formed the opinion that he was TPD before the proceedings were commenced in November 2008, not 8 May 2008 (the date Hannover received the workers compensation file) - although his Honour ultimately considered both dates. Mr Newey’s proceedings failed because neither Hannover nor the Trustee was of the opinion that Mr Newey satisfied the TPD definition at either 8 May 2008 or November 2008. Further, Mr Newey had not established that Hannover or the Trustee could reasonably have formed a view on the material before them at either 8 May 2008 or November 2008 that he satisfied the definition of TPD, or that the decision to defer a determination was unreasonable in light of all the evidence.
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A Newey Approach to Interest under the Insurance Contracts Act by Michael Iacuzzi & Lisa Norris
Implications The central issue arising from this judgment is that in appropriate circumstances, a decision with respect to a claim may sustainably be deferred. However, insurers and trustees need to carefully consider whether a decision to defer assessment of a claim is justified by the evidence. If a claimant in fact intends to undergo surgery or other treatment, and there is a possibility ‘at any time in the future’ that the claimant will return to their previous occupation or other work within their education, training or experience, a decision to defer is likely to be found reasonable. A decision to defer may not be reasonable if it is based on evidence which contains a mere suggestion that a claimant may benefit from surgery or other treatment, where there is no evidence that the claimant will actually undergo that surgery or other treatment (i.e. there is a mere possibility of surgery but no real prospect of it). Further, a decision to defer would not be reasonable if the evidence shows that the claimant will not be able to return to work post-surgery in any event, or that he or she could only return to work post-surgery in a field outside their pre-disability education, training or experience (eg after re-training). Finally, a decision to defer pending anticipated surgery should be distinguished from a declinature of a claim where the claimant has unreasonably refused to cooperate with a recommended treatment regime.
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A Newey Approach to Interest under the Insurance Contracts Act by Michael Iacuzzi & Lisa Norris
For more information, please contact: Michael Iacuzzi Senior Associate T: 02 8257 5769 michael.iacuzzi@turkslegal.com.au
Lisa Norris Partner T: 02 8257 5764 lisa.norris@turkslegal.com.au
Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes | Workers Compensation | Business & Property
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