TPD Claims: SCT MUST APPLY CORRECT DEFINITION WHEN CONSIDERING WHETHER A TRUSTEE ACTED FAIRLY & REASONABLY by Ros Wicks | August 2006
The Case of Cullinane V Mercer Benefit Nominees Limited [2006] FCAFC 82
Introduction The Federal Court has allowed an appeal from the decision of Justice Lindgren who upheld a Superannuation Complaints Tribunal (“the SCT”) decision in favour of the trustee’s decline of Ms Cullinane’s claim for a Disablement benefit. Ms Cullinane, who had worked as a flight attendant, made a claim for a Disablement benefit to the trustee in 2001, following cessation of work allegedly after exposure to airborne chemicals. The trustee and the insurer declined the claim. Only one of the issues decided by Justice Lindgren was pursued in the appeal. Ms Cullinane contended that the trustee, the SCT and Justice Lindgren all construed the definition of “Disablement” in the trust deed too narrowly and as a result fell into error in not finding that she had met the criteria for the Disablement benefit. Justice Lindgren had concluded that an error had been made in referring to the definition of Total and Permanent Disablement (“TPD”) in the insurance policy rather than the definition of Disablement in the trust deed. However, he held that the two definitions were compatible and the TPD definition did not impose a more stringent test upon Ms Cullinane than the Disablement definition. The Court did not agree and held that the test considered by the SCT was incorrect as a matter of law.
The Full Court Decision The Court noted that the insurer had erroneously proceeded upon the assumption that Ms Cullinane’s claim was for a TPD benefit, whereas her claim had in fact been for a Disablement benefit as defined in the trust deed. The definition of Disablement required her to be “unable to engage in any gainful occupation or business…” whereas the TPD definition used the words “unable and unlikely ever again to be able to undertake any form of remunerative work...” The SCT had held that it was not fatal that the definitions were different as they were compatible—both implied a component of future service. Justice Lindgren concluded that “unable” meant “permanently unable” or “unable now and for the foreseeable future”. According to the Court, Justice Lindgren treated these terms as if they were indistinguishable. The Court considered the ordinary and natural meaning of the term “unable” by looking at the Oxford English Dictionary and Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Insurance Cases 61-175.
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They held that the meaning of “unable” depends on its context, but there was nothing inherently “permanent” about the status of incapacity leading to inability. In their view, there is a fundamental difference between a permanent incapacity (even allowing for some latitude in the scientific certainty required for that assessment) and an incapacity that exists now and will continue to exist in the foreseeable future. The latter test was the one that should have been applied under the definition of Disablement and, in the Court’s opinion, represented a significantly less stringent hurdle for a claimant to overcome. For this reason, the Court held that it would be wrong to allow the SCT’s decision to stand and ordered that the matter be remitted back to the SCT so that it could reconsider whether the trustee acted in a fair and reasonable manner when it rejected Ms Cullinane’s claim, this time applying the correct test for Disablement.
Implications The Court did not interfere with Justice Lindgren’s decision that insurers do not need to point to a specific occupation a member can perform in order to decline a TPD claim as this finding was not appealed against. It was also recognised and accepted by the Court that the role of the SCT was to determine whether the trustee’s actions were “fair and reasonable”, focusing upon the outcome of the trustee’s deliberations rather than the process by which the outcome was achieved. However, the Court held that a trustee’s decision cannot be viewed through “the prism of an incorrect statement of the legal test” that a claimant must overcome in order to qualify for the benefit sought. This decision is a warning to insurers and trustees alike to ensure that they give words and terms in insurance policies and trust deeds their ordinary and natural meaning. The Court stated: “This case illustrates, yet again, the dangers of importing into the language actually employed in an instrument that is intended to govern the rights and obligations of the parties words that they have not themselves chosen to adopt. Words such as “unable” are ordinary words and should be given their ordinary meaning.” This judgment can be found at http://www.austlii.edu.au.
For More Information Please Contact: Ros Wicks Senior Associate T: 02 8257 5741 ros.wicks@turkslegal.com.au
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