FOS and the ‘theoretical’ complainant by TurksLegal

FOS and the ‘theoretical’ complainant -

When is a FOS complaint out of time, and what gives a Court the right to say so? By Lisa Norris | July 2011 Area of Expertise | Financial Services & Life Insurance

Summary In this case, the plaintiff challenged a ruling by the Financial Ombudsman Service (FOS) that it did not have jurisdiction to deal with the plaintiff’s complaint against a decision of MetLife Insurance Ltd (MetLife) to terminate salary continuance insurance (SCI) benefits. FOS had determined that the complaint was lodged more than 6 years after the plaintiff became aware of all relevant facts, and so it could not deal with the complaint. The facts are somewhat unusual, in that the plaintiff had disputed MetLife’s decision that he was TPD; that is, he alleged that he was not TPD. The case also revisits a question that Shaw J left unresolved in Masu Financial Management Pty Ltd v FICS (2004) 50 ACSR 554, being whether decisions of FOS are judicially reviewable on administrative law grounds (as opposed to being open to challenge on contractual grounds).

Who Does This Impact? Claims and legal teams of organisations that are members of FOS, including life insurers.

What Action Should Be Taken? The litigation was concerned with the interpretation of the Terms of Reference in force as at 1 July 2008, which have been superseded by later Terms of Reference. Differences in terminology between the various Terms of Reference might make a significant impact on a claim, depending on the facts of a given case. While it seems obvious, it is worth reiterating that the applicable Terms of Reference must be consulted when insurers are considering whether to object to FOS dealing with a complaint that appears to have been lodged too late.

Background The plaintiff suffered a serious injury in February 1995 after he slipped on leaking oil at work. He was diagnosed with ankylosing spondylitis, which had become symptomatic after the fall. He also suffered from hypertension. He ceased work in September 1998 and has never returned to work. The plaintiff was a member covered at the relevant time by a group salary continuance (SCI) policy between MetLife (then known as ‘Citicorp Life Insurance Ltd’), Visy Board Pty Ltd and Visy Paper Pty Ltd (collectively, Visy) (the SCI Policy).

TU R K S L E G A L

TUR K A LER T

FOS and the ‘theoretical’ complainant Mickovski v Financial Ombudsman Service & Anor [2011] VSC 257 by Lisa Norris

There was also at all relevant times a group life insurance contract between MetLife and the Visy Board Superannuation Fund which provided for payment of, inter alia, TPD benefits to the superannuation fund Members (the TPD Policy). The plaintiff was a member of the Visy Board Superannuation Fund. It was a term of the SCI Policy that SCI benefits ceased on TPD: MetLife Insurance Ltd v Visy Board Pty Ltd & 25 ors [2007] NSWSC 1481 (MetLife v Visy). The plaintiff lodged a claim to Visy for SCI benefits in early 1999, and Visy in turn lodged a claim for SCI benefits to MetLife. The SCI claim was admitted, and benefits were paid to Visy by MetLife with respect to the plaintiff. MetLife received a letter from the administrator of the Visy Board Superannuation Fund dated 12 April 1999 stating ‘Mr Mickovski has advised me today that his situation has not improved and it is unlikely that he will be returning to work. Accordingly we now wish to lodge a claim for Total and Permanent Disablement under Policy 1767’. His Honour appears to have accepted that this constituted a claim by the plaintiff (via Visy) for a TPD benefit. In accordance with this claim, MetLife assessed the plaintiff against the TPD definition in the TPD Policy. Based upon the available material, MetLife formed the view on 23 July 1999 that the plaintiff was incapacitated to such an extent as to render him unlikely ever to engage in any gainful profession, trade or occupation for which he was reasonably qualified by reason of education, training or experience, and that he was therefore TPD as defined in the TPD Policy. MetLife paid the TPD benefit to the Visy Board Superannuation Fund, and the plaintiff accepted payment of the TPD benefit from the fund. In MetLife’s view, the benefit period in the SCI Policy with respect to the plaintiff ended in July 1999 because he was TPD. MetLife therefore ceased payment of benefits under the SCI Policy in July 1999. MetLife later became aware that, due to an administrative error, the SCI Policy schedule did not reflect the contracting parties’ intention that SCI benefits should cease on a claimant being TPD. MetLife applied to the NSW Supreme Court to have the SCI Policy Schedule rectified so as to reflect its agreement with Visy that SCI benefits would cease on TPD. Visy consented to this application. The plaintiff was represented in the MetLife v Visy proceedings from mid-2007, having been joined as a defendant at his request, and he opposed MetLife’s application to have the Court rectify the SCI Policy. In November 2007 Brereton J found that it was the contracting parties’ intention that SCI benefits should cease on a claimant being TPD, and he rectified the Policy so that the Benefit Period read ‘to Age 65 (ceasing on TPD)’. He held that, for the purposes of considering whether the benefit period in the SCI Policy had expired, the question was whether the claimant had, relevantly: been absent from his or her occupation with the employer through accident or illness for six consecutive months and having become incapacitated to such an extent as to render the member unlikely ever to engage in any gainful profession, trade or occupation for which the member is reasonably qualified by reason of the [sic] education, training or experience. This definition differed from the TPD definition in the TPD Policy only in the absence of the words ‘… having provided proof to our satisfaction that the Member has become incapacitated [etc]’ . A complaint was made by the plaintiff to FOS on 3 November 2008, seeking reinstatement of SCI benefits on the basis that he was not TPD.

TU R K S L E G A L

TUR K A LER T

FOS and the ‘theoretical’ complainant Mickovski v Financial Ombudsman Service & Anor [2011] VSC 257 by Lisa Norris

On 19 November 2008, 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 Rule 14.1(p) of the FOS Investments, Superannuation and Life Insurance Terms of Reference dated 1 July 2008 (the Terms of Reference), and that hence FOS could not deal with the complaint. The plaintiff commenced proceedings against FOS and MetLife in the Supreme Court of Victoria seeking a declaration that in making the ruling that it lacked jurisdiction to decide the complaint, FOS breached its Terms of Reference dated 1 July 2008 and Constitution, and alternatively, ‘judicial review (certiorari or mandamus)’. The proceedings were defended by MetLife only, as FOS filed a submitting appearance.

Judicial Review The plaintiff sought judicial review on administrative law grounds including failure by FOS to properly exercise its jurisdiction, jurisdictional error, error of law on the face of the record, and failure to hear and determine the complaint. If made out, such errors would give rise to administrative law remedies such as certiorari (‘to quash’ or set aside a decision) and mandamus (an order from a Court compelling a decision-maker to perform particular acts). Pagone J found that decisions of a private body exercising duties of a public nature are amenable to judicial review (R v Panel on takeOvers and Mergers; ex parte Datafin Plc [1987] 1 QB 815, as relied upon by Shaw J in Masu). However, he observed that this did not necessarily mean that a FOS decision comes within the operation of the principle. His Honour found that the public interest in the existence of a dispute resolution mechanism to resolve private disputes does not constitute a public function or element sufficient to invoke the principle in Datafin. Therefore, in deciding a private controversy or complaint, FOS is not exercising a public duty or public element so as to trigger the Court’s supervisory jurisdiction. Therefore, the plaintiff could not demonstrate that the Court had jurisdiction to undertake judicial review of the FOS ruling.

Contract The plaintiff’s alternative argument was that there was a tripartite contract between himself, MetLife and FOS that arose when he lodged the complaint. This argument was upheld. His Honour found that, upon making a complaint, the plaintiff became bound to comply with the Terms of Reference to the extent that they applied to him and, correspondingly, he became entitled to expect the Rules to be applied by FOS correctly. MetLife pointed out that, under clause 37 of the Terms of Reference, the outcome of the complaint would not bind the plaintiff. His Honour did not consider that this meant there was no binding agreement with respect to the process to be undertaken by FOS once a complaint was lodged. His Honour therefore found that the proceedings were competent, and he could examine whether there had been a breach by FOS of the tripartite ‘process’ contract. He ultimately found that there had not been such a breach, for the reasons discussed below.

TU R K S L E G A L

TUR K A LER T

FOS and the ‘theoretical’ complainant Mickovski v Financial Ombudsman Service & Anor [2011] VSC 257 by Lisa Norris

‘Relevant facts’ allegedly unknown to the plaintiff Clause 14.1(p) of the Terms of Reference provided that FOS could not deal with a complaint ‘where the complainant knew or should reasonably have known of all relevant facts more than 6 years before first notifying the Service about the complaint’. The plaintiff alleged that he did not know prior to 3 November 2002 (being the date 6 years prior to lodging the complaint) the following ‘relevant facts’: (a) By virtue of the MetLife v Visy judgment rectifying the Policy in 2007, SCI benefits did not cease on the formation of MetLife’s opinion that he was TPD, but only if he was in fact objectively TPD; (b) Some medical reports in MetLife’s possession in 1999 were not made available to him prior to 3 November 2002. It was held by his Honour that the expression ‘all the relevant facts’ in Rule 14.1(p) is not limited to ‘those facts that establish the essential elements of the complainant’s claim or cause of action against the member’, which was the interpretation MetLife argued for. However, he did not consider that the FOS Ruling on jurisdiction was based upon that interpretation, in any event. His Honour did not go on to identify what the scope of the phrase ‘all the relevant facts’ actually was. To that extent, the judgment does not provide any clarification regarding the meaning of the phrase.

Subjective v objective definition of TPD His Honour noted that the effect of the rectification of the SCI Policy was that ‘entitlement to one [benefit] was not mutually exclusive of entitlement to another [benefit]’ – meaning that a claimant might be TPD in MetLife’s opinion and obtain the TPD benefit, but may not be objectively TPD so as to cease being entitled to the SCI benefit. However, his Honour cited the finding of FOS that the points of difference between the subjective and objective TPD definitions were no more than theoretical, and that: FOS could not reasonably conceive a set of circumstances in which the medical evidence was sufficient to satisfy [MetLife] that an insured employee was totally and permanently disabled for the purposes of paying the TPD benefit, and yet not be objectively totally and permanently disabled under the same definition, for the purposes of the SCI benefits ceasing. His Honour was ‘not satisfied that any error has been shown to have been made by FOS in reaching this conclusion in its ruling’. He observed that FOS was not asserting that there was no difference between the subjective and objective definitions; it found that there were differences, but in the context of the facts surrounding the complaint by the plaintiff, the differences were no more than theoretical. The plaintiff also argued that, had he been informed in 1999 or 2000 that SCI benefits did not cease merely on the formation of MetLife’s opinion that he was TPD (as opposed to being objectively TPD), ‘it cannot be asserted that .. [he] would have taken no action’. The Court upheld FOS’s rejection of this argument, because ‘jurisdiction under clause 14.1(p) required more than theoretical possibilities’.

Medical evidence Finally, the plaintiff argued that the existence of some medical reports in MetLife’s possession that he had not seen by 3 November 2002 (ie, 6 years before lodging the complaint to FOS) was a relevant fact. His Honour quoted with approval FOS’s ruling (which in

TU R K S L E G A L

TUR K A LER T

FOS and the ‘theoretical’ complainant Mickovski v Financial Ombudsman Service & Anor [2011] VSC 257 by Lisa Norris

turn quoted MetLife’s submissions) that: the medical reports themselves are not relevant facts but evidence of a relevant fact: whether the Complainant was TPD within the meaning of the Policy wording. The reports withheld by [MetLife] did not constitute the only evidence on this issue. His Honour also approved the section of the FOS ruling which stated that, from early 2001 at the latest, the plaintiff was in a position to obtain (and possibly had obtained) several medical reports which would support an argument that he was not TPD, dating from 1999 and 2000. He was therefore sufficiently placed by 2001 to have been aware that not all the evidence was supportive of him being TPD. The plaintiff argued that the failure by MetLife to make the reports available to the plaintiff in 1999 when it determined him TPD and ceased SCI benefits amounted to a breach of the duty of utmost good faith. His Honour did not accept this argument, and stated: I doubt that there was any breach of MetLife’s duty of utmost good faith because the reports were not obtained prior to, or in making, an adverse decision, on undisclosed facts, against Mr Mickovski. This was because ‘the reports confirmed the entitlement for which he had claimed’. His Honour also found there was no error in FOS’s conclusion that nothing in those reports ‘would have altered the view on this question of fact [ie, that the plaintiff was not TPD in 1999 when SCI benefits ceased], such that the Complainant could not reasonably have known the relevant fact until he had a chance to review those reports’. Finally, the plaintiff argued that if he had been made aware of the content of the additional medical reports, ‘it may well have altered his view about what steps he could take’. His Honour agreed with FOS’s view that this theoretical possibility was also not sufficient to enliven FOS’s power to deal with the complaint.

Decision The proceedings were dismissed. The plaintiff was subsequently ordered to pay MetLife’s costs.

Implications Claimants who make FOS complaints many years after their claims are declined or finalised, based on what they theoretically might have done had they known certain things, may find it difficult to persuade FOS to deal with their complaints. It seems that neither FOS nor the Courts will overlook the need for a complainant to establish more than a mere theoretical possibility that they might have taken action sooner, had they known of the allegedly relevant facts. The decision concludes that judicial review of FOS determinations (giving rise to administrative law remedies such as certiorari and mandamus) is not available, at least in Victoria. The decision may be contrasted with the decision of Shaw J in Masu, in which his Honour was inclined towards the view that FOS determinations were amenable to judicial review. As Shaw J’s judgment was ultimately based on breach of contract, it was not necessary for him to form a concluded view as to whether FOS determinations are also judicially reviewable on administrative law grounds.

TU R K S L E G A L

TUR K A LER T

FOS and the ‘theoretical’ complainant Mickovski v Financial Ombudsman Service & Anor [2011] VSC 257 by Lisa Norris

In a practical sense, the view that FOS decisions are not amenable to judicial review is unlikely to impact greatly on the entitlement of insurers (and now complainants) to challenge FOS determinations in the courts. An action in contract might be commenced against FOS by an insurer (should the circumstances give rise to a basis to do so) based on the direct contract between the insurer and FOS, as was found to exist in Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd (2006) 157 FCR 229. A complainant might commence proceedings based on the tripartite ‘process’ contract identified by Pagone J. While the basic remedy available for a breach of contract is damages, equitable remedies such as declarations would presumably be more appropriate in such a case. As noted above, Clause 37 of the relevant Terms of Reference provided that a complainant was not bound by the outcome of a complaint to FOS. Most claimants who are unhappy with a FOS determination would simply commence proceedings against the insurer, having first explored the alternative dispute resolution option of FOS. Here the TPD decision by MetLife was made in July 1999, and the Complainant did not seek to contest that decision until August 2008, over 9 years later. Had the TPD definition in issue been a subjective definition (ie, one which turned on MetLife’s satisfaction/opinion that the plaintiff was TPD), the response to the plaintiff’s IDR letter in late 2008 could have been sufficient to ‘start the clock ticking’ again for a challenge to the reasonableness of its decision. However, here the question was whether the plaintiff was objectively TPD as at the relevant time, which was more than 6 years prior to his challenge to the TPD decision. The Limitation of Actions Act 1958 (Vic) would have affected his ability to commence litigation against MetLife in Victoria based on contract after July 2005. Therefore, unless the plaintiff could persuade FOS that it could deal with the complaint because new ‘relevant facts’ became known to him less than 6 years before he lodged the complaint, he was without recourse to either litigation or ADR. Similar litigation by other complainants dissatisfied with FOS decisions is unlikely, unless their causes of action against the insurer are also statute barred.

Postscript: An appeal was filed by the plaintiff on 1 July 2011

TU R K S L E G A L

TUR K A LER T

FOS and the ‘theoretical’ complainant Mickovski v Financial Ombudsman Service & Anor [2011] VSC 257 by Lisa Norris

For more information, please contact: Lisa Norris Partner T: 02 8257 5764 lisa.norris@turkslegal.com.au

www.turkslegal.com.au Th is Tur k Ale r t is cur rent at it s d ate o f p u b lic at io n . Wh i l e e ve r y c a re h a s be e n ta k e n i n th e pre pa rati o n o f th i s Tu r k Aler t i t does not con s titute leg a l a dvice a n d sh o u ld n o t b e relied u p o n fo r th i s pu r po s e. Spe c i f i c l e g a l a d v i ce s h o u l d be s o u g ht o n pa r ti c ular matter s. Tur ksLeg a l do es not a ccep t resp o n sib ilit y fo r a ny er ro r s i n o r o mi s s i o n s f ro m th i s Tu r k Al e r t. Th i s Tu r k Al e r t i s co py r ig ht and no par t m ay b e reproduced in a ny fo r m wit h o u t t h e p er m ission o f Tu r k s Le g a l. Fo r a ny e n qu i r i e s, pl e a s e co nta c t th e a u th o r o f thi s Tur k Aler t. © Tu r k s Le g a l 2 0 1 0