Court Considers the Duty to Reconsider a TPD Claim By Darryl Pereira | February 2009 Area of Expertise | Insurance & Financial Services, Superannuation & Collective Investments
Summary The recent decision of the Federal Court of Australia in Kowlaski v MMAL Staff Superannuation Fund Pty Ltd1 demonstrates that the duty to reconsider in TPD claims is not enlivened unless new material is presented.
Who Does This Impact? Superannuation trustees and group life insurers.
What Action Should Be Taken? Superannuation trustees should take note of the circumstances in which it may not be necessary to reconsider a member’s TPD claim when requested to do so by a member.
The Facts The plaintiff issued proceedings against the trustee of his superannuation fund claiming an entitlement to a Total and Permanent Disablement (TPD) benefit pursuant to the terms of the trust deed governing the superannuation fund. The trustee self-insured the fund during the relevant period for which the plaintiff was claiming an entitlement to a TPD benefit. The trustee sought summary dismissal of the plaintiff’s proceedings pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth). This section provides that a Court can give judgment for one party against another if the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting its case. The plaintiff alleged against the trustee that in August 1991 he suffered a psychological injury/mental breakdown whilst employed by Mitsubishi Motors Australia Ltd (MMAL) and in respect of which he lodged a TPD claim in February 1992. The plaintiff’s TPD claim was rejected by the trustee and this decision was not challenged in these proceedings. The plaintiff’s employment was subsequently terminated by MMAL on 16 March 1994. The trustee was advised at the end of March 1994 by MMAL that the plaintiff had ‘resigned’ from his employment. There was no contemporaneous evidence of how the trustee was notified of the plaintiff’s termination. There was also no evidence to suggest that a formal application for a TPD benefit was made by the plaintiff at the time of his termination . In late August 1994, the trustee determined to pay the plaintiff a ‘resignation benefit’ under the Trust Deed. The plaintiff claimed that the trustee should have considered, in late August 1994, his entitlement to a TPD benefit rather than a resignation benefit. In any event, in July 2001 the plaintiff provided the trustee with further additional medical evidence which he asked to be considered. The plaintiff’s TPD claim was reconsidered and rejected by the trustee in August 2001.
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The relevant test under the Trust Deed for TPD was: …in relation to a Member disablement due to illness accident or injury as a result of which – (a) he has been continuously absent from employment with the Employer for a period of at least six months (or such lesser period as the Trustee may determine in any particular case); and (b) he is, in the opinion of the Trustee and after consideration of medical evidence satisfactory to them, incapacitated to such an extent as to render him unlikely ever to engage or work for reward in any occupation for which he is reasonably suited by education, training or experience.
On 3 November 2005 the plaintiff applied to have the trustee’s decision in August 2001 to decline his TPD claim reconsidered based on additional material. The trustee refused to reconsider the plaintiff’s claim. The trustee’s solicitors informed the plaintiff that: … The trustee is of the opinion that your letter of 3 November 2005 and its annexures raise no new issues. We have again been instructed by the Trustee that we will not be responding to any matters that you have previously raised and which have been dealt with.
His Honour summarised the plaintiff’s allegations against the trustee as relevantly including whether: (a) the trustee should have considered, but failed properly to do so, the plaintiff’s entitlement to a TPD Benefit at the time he was paid a resignation benefit in August 1994; and (b) the trustee should have but failed to properly consider his claim for a TPD Benefit in November 2005.
Judgment His Honour accepted that the grounds upon which a Court will review an exercise of a superannuation trustee’s exercise of discretion are essentially those stated in the well known decision by McGarvie J in Karger v Paul2, namely where: •
that discretion was not exercised in good faith;
•
there was not a real and genuine consideration of the correct question;
•
the discretion was not exercised in accordance with the purposes for which the discretion was conferred; and
•
if the trustee has given reasons for its exercise of discretion, those reasons were not sound.
His Honour further noted that whilst both under the general law and the terms of this particular trust deed, the trustee had no duty to give reasons for a determination adverse to the plaintiff, a failure to give reasons in circumstances where explanation might be called for is another matter. In this respect His Honour quoted with approval the observations made by Young J in Maciejewski v Telstra Super Pty Ltd3 who in dealing with the suggestion that a trustee is not bound to give any reasons and therefore the matter is
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completely unreviewable stated: Nothing could be further from the truth…in a case where a plaintiff puts forward a prima facie case that the trustee’s discretion was miscarried, the absence of reasons and the absence of any evidence before the Court as to what happened, will tend to make that prima facie case a virtual certainty.
Against that background in relation to the plaintiff’s claim to a TPD benefit in 1994, His Honour noted that no formal application for a TPD benefit was made at the time the plaintiff’s employment was terminated and the trustee was unaware that it should consider the plaintiff’s termination entitlements with such a benefit in mind. It followed according to His Honour that the trustee was entitled, at that time, not to inquire into whether there was medical evidence capable of supporting a TPD entitlement stating that it ‘had no need, or obligation, to in the circumstances.’ Turning to the plaintiff’s allegation that the trustee should have reconsidered the plaintiff’s claim to a TPD benefit in November 2005, His Honour noted that: whilst it is a trustee’s duty to act in the best interests of its beneficiary, absent an express power of dictation, a trustee is not the pawn of a beneficiary.
His Honour held that a beneficiary is entitled to seek the reconsideration of a decision affecting his or her interests unless this is precluded by the nature of the decision itself or by the terms of the trust instrument. His Honour went on to state: where the decision, as here requires the Trustee to form a particular opinion and that opinion has previously been formed adversely to the beneficiary, the Trustee is not obliged to reconsider that opinion absent some reason for so doing. Where, as here, what is raised by the beneficiary is [a] matter which the Trustee has previously had raised before it and dealt with, the Trustee is entitled to decline to reentertain that matter in the future unless, because of a change of circumstances or otherwise, that decision was not one that a reasonable person could then make.
His Honour therefore dismissed the plaintiff’s claims against the trustee.
Implications It is well-established that a trustee, when faced with a request to reconsider a TPD claim in an opinion based TPD definition based upon fresh medical or other evidence that indicates a change of circumstances, is bound to consider it.4 In recent times, solicitors acting on behalf of members have increasingly invoked this principle to seek to have a trustee/group life insurer continually reconsider a member’s claim to a TPD benefit. Kowalski highlights that there are limitations to a trustee’s duty to reconsider a TPD claim based on further evidence. In effect, the trustee’s initial obligation when faced with a reconsideration request is to consider whether or not to reconsider its original decision in light of the additional material. In the event the further evidence raises no new material nor indicates a relevant change in circumstances, then a trustee is not obliged to reinvestigate a member’s TPD claim. Compare this with the extent of the trustee’s obligation to reconsider when new material does require a trustee to reinvestigate a TPD claim – see TurkAlert from Peter Riddell ‘TPD Claims and Subsequent Evidence:
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The Importance of Being Earnest’ for further commentary on this issue. Finally, His Honour’s comments that a trustee should be mindful of giving reasons in the context of TPD claims when an explanation might be called for adds to a body of case law which suggests that the failure to give reasons may in certain circumstances adversely impact on a trustee’s ability to defend its discretionary determination in the context of a TPD claim. In these circumstances, a trustee exercising a discretion in a TPD claim should ensure procedures are in place which would allow it, if called upon, to be able to demonstrate the process of how the claim was considered.
Endnotes 1
Kowlaski v MMAL Staff Superannuation Fund Pty Ltd ( ACN 064 829 616) (No 3) [2009] FCA 53 judgement delivered on 5 February 2009.
2
[1984] VR 161
3
(1998) 44 NSWLR 601.
4
See Tonkin v Western Mining Corporation Ltd (1998) 10 ANZ Insurance Cases 61-397.
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For more information, please contact:
Darryl Pereira Senior Associate T: 02 8257 5718 darryl.pereira@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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