TPD Claims: Does an Insurer Have to Obtain Evidence to Support the Claimant’s Case? by Alph Edwards | January 2007
Introduction In Dumitrov v SC Johnson & Sons Superannuation Pty Limited & Anor1 the NSW Supreme Court has confirmed that when an insurer is asked to reconsider a decision to reject a Total and Permanent Disablement Benefit (TPD) claim, it must “reinvestigate” the claim afresh rather than just review its original decision. Further, not only must the insurer tell the claimant what it regards as necessary to establish a claim and provide a chance to respond to matters which militate against admitting the claim, it must make further enquiries of doctors who do not specifically address the issue of permanent disablement. In this regard the decision may be in conflict with several well regarded authorities.
The Facts The plaintiff, a process worker, was a member of the SC Johnson Superannuation Fund and brought a claim for a TPD benefit against the Fund and its group insurer in respect of an injury to his right wrist. After initially injuring his wrist in early 1996 the plaintiff subsequently had surgery and later developed symptoms in his left wrist. He ceased work a year later. The claim was initially declined by the insurer in March 2001 and it was asked to review it in May 2002. Once again, the insurer declined the claim in September 2002. The plaintiff apparently took no issue with the original 2001 decision. Rather, he disputed the validity of the September 2002 reconsideration. The TPD definition clause required the insurer to be of the opinion that the plaintiff was incapacitated to such an extent as to render him “unable ever to engage in or work for reward in any occupation or work” for which he was “reasonably capable of performing by reason of education, training or experience”.
The Issues The plaintiff pursued the proceedings against the insurer only, the Fund having been deregistered in 2003. Gzell J had no difficulty with the plaintiff seeking relief solely against the insurer noting that “It is now beyond dispute that an insured, even if not a party to insurance, is owed the duty of utmost good faith by the insurer and may sue the insurer without joinder of the other party to the insurance”.
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The three issues in the case were: •
Was the TPD definition an “unusual one” upon which the insurer could not rely by operation of s37 of the Insurance Contracts Act.
•
If the definition was not unusual, had the insurer breached its duty of utmost good faith in rejecting the claim.
•
If the insurer had breached its duty of utmost good faith, was the plaintiff TPD according to the definition.
The Judgment THE SECTION 37 ISSUE The plaintiff argued that the requirement in the definition that the plaintiff be “unable” to work again was harsher than the test that the plaintiff be “unlikely” to work again and that this made it an unusual term in the context of s37. Gzell J spent little time in dismissing this argument. He agreed that the “unable” provision was harder than the “unlikely” provision but said that did not make the provision an unusual one. Further his Honour pointed to several decisions where an identical definition had been considered by the courts without being classified as unusual for the purposes of s37.
THE GOOD FAITH ISSUE According to Gzell J it was “well established” that where an insurer’s liability depended upon the formation by it of an opinion as a condition of its liability, the insurer is bound by its duty of good faith and fair dealing to act reasonably and fairly in considering and determining the matter. This duty required the insurer to address its mind to the correct question and to act in good faith. Gzell J found that the insurer was bound to reinvestigate the claim in September 2002 and to reasonably and fairly put its mind to the question of whether the plaintiff fell within the TPD definition. Instead of doing this, the insurer simply assessed whether its earlier decision was justified on an analysis of the material on file. Such a course meant it failed to address the correct question. Additionally, the insured failed to inform the plaintiff “of what it regarded as necessary to establish that he fell within the definition, and it failed to inform him of the basis” of the redetermination and give him time to respond. Presumably his Honour was of the view that these “failures” also amounted to a breach of the duty of utmost good faith. The failure to address the correct question was enough “to dispose of the second issue” however Gzell J then proceeded to identify aspects of the “report” by the insurer (the judgment does not identify what type of document the “report” was) which “strengthen the conclusion that (the insurer) failed to discharge its duty of utmost good faith”.
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In a nutshell these further aspects can be summarised as follows: •
The insured misrepresented the views of a treating doctor in the “report”.
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The insurer failed to make enquiries of both treating doctors and doctors qualified by it as to whether the plaintiff fell within the relevant definition.
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The insurer failed to seek a report from a doctor who had treated the plaintiff and whose views may have been relevant to the issue at hand.
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The insured failed to make further investigations in circumstances where it had medical reports which suggested the plaintiff may be disabled.
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The insurer dismissed an opinion of a doctor based on a narrow and unreasonable interpretation of what the doctor said and without further investigating with the doctor to clarify his opinion.
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The insurer placed undue weight on evidence in medical reports of exaggeration of symptoms and little or no weight upon the medical reports which supported the view that the plaintiff was unfit for work or fell within the definition.
•
The review of the file by the insurer was unfairly biased against the plaintiff.
WAS THE PLAINTIFF TPD? Having found that the decision of the insurer could not stand, his Honour stated that it was now up to him to decide the issue of whether the plaintiff was TPD, which he did, finding for the plaintiff.
Implications As with many areas of the law pertaining to TPD claims, there is conflicting authority as to what an insurer has to do in terms of obtaining evidence with respect to such a claim. In Tonkin v Western Mining Corporation Ltd 2 the Full Court of the Western Australian Supreme Court held that there was no obligation on a trustee considering a TPD claim to “strain” to seek out its own evidence. Although referring to a trustee, the reasoning would apply equally to an insurer considering such a claim. In Sayseng v Kellog Superannuation & Anor3 whilst Bryson J held it was unfair for the insurer to act upon adverse medical reports obtained by it without giving the claimant an opportunity to respond, it would seem he implicitly rejected the notion that it fell to the insurer to obtain evidence to fill gaps or rectify weaknesses in a claim. On the other hand, in Maciejewski v Telstra Super Pty Ltd 4 the Court found that it was up to the party assessing the claim to obtain its own evidence and not simply leave it up to the claimant. This approach is also one that the SCT has adopted in recent times (see for example Determination Number D06-07/066). The current decision is more in line with Maciejewski and the present approach of the SCT and is disturbing for insurers in that it arguably expands the duty of good faith as set out in Sayseng. That is, acting in good faith requires insurers to actively seek out evidence to support a claimant’s case.
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This clearly represents an additional burden for insurers. For example, insurers are often served with bundles of old workers compensation medical reports which invariably do not address the fundamental question of permanent disablement. If the logic in the present case were followed, it would fall upon the insurer to clarify with every such doctor, even doctors who may have long since ceased treating a claimant, whether they believe the claimant is TPD. The additional expense and time involved in such a procedure is self evident. As indicated above, the law with respect to this particular issue is contradictory. Against this background one must be careful as to the importance placed on any one single judge decision. It may well be that the law develops with respect to this issue to the point that this decision will unequivocally represent the position insurers should adopt when it comes to the obtaining of evidence. At the present time, however, to the extent this decision is in conflict with Tonkin and Sayseng, both being appellate decisions, Tonkin and Sayseng should be preferred. Quite apart from the controversy as to what evidence an insurer must obtain before making a decision on a TPD claim, this decision once again confirms the critical importance of predetermination disclosure. That is, before making an initial determination or a redetermination an insurer must at the very least: •
provide complete disclosure of all material to a claimant;
•
draw the claimant’s attention to the important issues; and
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allow the claimant a chance to respond to such material and issues.
Finally, the decision highlights the potential danger in an insurer providing a detailed analysis of why a TPD claim has been rejected. Often, despite the best intentions, all such an analysis does is provide a court with a basis to find a decision invalid. In this regard, the words of Nicholas J in Nile V Club Plus Superannuation5 should be remembered. His Honour stated that “the insurer’s statement of reasons for a declination should be understood as a practical document intended to inform the claimant of the basis of a decision rather than detailed reasons with reference to the evidence relied upon comparable to a judgment of a court or tribunal.”
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Endnotes 1
[2006] NSW SC 1372
2
(1998) 10 ANZ Insurance Cases
3
[2003] NSW SC 945
4
[1998] NSW SC 376
5
[2005] NSW SC 67
For more information, please contact: Alph Edwards Partner T: 02 8257 5703 alph.edwards@turkslegal.com.au
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