Trustees’ Duties, TPD and Part Time Work by TurksLegal

Trustees’ Duties, TPD and Part Time Work: Are the Courts Reining Back?

Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 By Lisa Norris & Michael Iacuzzi | May 2010 Area of Expertise | Insurance & Financial Services

Summary The Supreme Court of New South Wales recently re-examined the nature of the duties a trustee owes to its members when entering into a new policy of life insurance. The Court found that a trustee had not breached any duty owed to its members by entering into a group life insurance policy which contained different terms to an earlier policy, some of which could (arguably) be regarded as less favourable than the terms of an earlier policy. The Court also revisited the relevance of capacity for part time employment to TPD claims generally. Rein J did not accept that a claimant with capacity to work part time is generally entitled to a TPD beneﬁt, or that the word ‘employment’ in a TPD deﬁnition necessarily means ‘full time employment’ employment’.

Who Does This Impact? Life insurers and superannuation fund trustees.

What Action Should Be Taken? Superannuation fund trustees should be aware of the duties they owe members when entering into a new policy of life insurance and take care to ensure that entry into the new policy is in the best interests of members. In considering a TPD deﬁnition, fund trustees and life insurers should carefully consider whether ‘occupation’ or ‘employment’ in fact means full time employment, rather than assuming that it does or does not.

Background The defendant, Commonwealth Bank Officers Superannuation Corporation (‘the Trustee’), was the trustee of the Officers’ Superannuation Fund (‘the Fund’) which was established to provide benefits to employees of the Commonwealth Bank (‘the Bank’). The plaintiff, Mr Manglicmot, commenced employment with the Bank as a bank teller on a full time basis in 1998. The plaintiff sustained various injuries in 2000. He continued to work for the Bank for 15 hours a week after he was injured, and did not cease work until he accepted redundancy on 25 August 2003. The plaintiff claimed a TPD benefit of $120,000 on the basis that he was unable to work for more than 15 hours a week as a bank teller or in any other occupation. Up until 30 June 2003, the life insurer of the Fund was Hannover Life Re of Australasia Ltd (‘Hannover’). From 1 July 2003, the Fund’s group life insurer was CommInsure Pty Ltd (‘CommInsure’). The CommInsure Policy was in force as at the date relevant to the plaintiff’s claim.

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Trustees’ Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

The earlier group life policy between Hannover and the Trustee (‘the Hannover Policy’) had deﬁned TPD to mean: ‘having been absent from work through injury or illness for an initial period of six (6) consecutive months and in our opinion being incapacitated to such an extent as to render the Insured Person unable ever to engage in or work for reward in any occupation or work which he or she is reasonably capable of performing by reason of education, training or experience’ (emphasis added).

Following a merger between the Bank and Colonial Limited, the Trustee invited CommInsure to provide a quote for the group life cover. CommInsure was the insurer of Colonial Limited’s superannuation fund. The premium rates under CommInsure’s quote were lower than Hannover’s proposed premium and CommInsure guaranteed premiums for three years whereas Hannover did not. The Trustee entered into a group life policy with CommInsure which commenced on 1 July 2003 (‘the CommInsure Policy’). The agreement between the Trustee and CommInsure also contained a promise that CommInsure would ‘match or better the current terms and conditions in the Hannover contract’. Relevantly, the CommInsure Policy contained the following deﬁnitions: A member is totally and permanently disabled if, as a result of sickness or injury, he or she... (b) has been absent from all employment for 6 consecutive months from the date of disablement and we consider, on the basis of medical and other evidence satisfactory to us, the member will not ever be able to resume any occupation, whether or not for reward, where: ... · date of disablement means the later of: - the date on which the sickness or injury that was the principle [sic] cause of the member’s disablement commenced or occurred; and - the date the member ceased all work. The date of disablement must occur while the member is covered under this policy. - Occupation means an occupation that the person can perform, on a full time or part time basis, based on the skills and knowledge the person has acquired through previous education, training or experience (emphasis added).

The Trustee retained solicitors to conduct a comparison of the CommInsure Policy and the Hannover Policy to identify any gaps in cover. The Trustee and CommInsure continued to negotiate some amendments to the terms of the CommInsure Policy between July and December 2003, but no amendment was sought or made to the TPD deﬁnition. Therefore, the CommInsure Policy TPD deﬁnition above governed the plaintiff’s claim.

The Plaintiff’s Case The plaintiff claimed that the Trustee had breached duties owed to him as a member of the Fund by entering into the CommInsure Policy. He alleged that it contained terms which reduced the scope of cover to members and included onerous definitions. Specifically, the plaintiff alleged that the TPD definition in the CommInsure Policy was more restrictive than the Hannover Policy definition as it contained the words ‘on a part-time basis’. He alleged, based upon Chammas v Harwood Nominees Pty Ltd [No1] (1993) ANZ Insurance Cases 61-175, that this was a significant distinction.

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Trustees’ Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

The plaintiff conceded that he was unable to recover a TPD beneﬁt under the CommInsure Policy, but claimed he would have been entitled to one if the TPD deﬁnition in the Hannover Policy applied. Therefore, he had suffered loss and damage by reason of the Trustee’s decision to enter into the CommInsure Policy.

Trustee’s decision regarding choice of insurance It was accepted by the Trustee that it owed its members a duty to: •

act in the members’ best interests;

•

act impartially, excluding from consideration matters which are irrelevant and giving proper consideration to matters which are relevant;

•

exercise reasonable care (meaning that, in managing the Fund's affairs, the Trustee had taken ‘all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own’, Speight v Gaunt (1883) 9 App Cas 1);

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act honestly and in good faith;

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take an informed view of whether or not to exercise its discretion and not act irresponsibly, capriciously or wantonly; and

•

exercise its power with due consideration for the purpose for which the power was conferred and not some ulterior purpose.

The Trustee argued that it was empowered by the trust deed to exercise its ‘absolute and uncontrolled discretion’ to enter into a policy of life insurance and was not bound to give reasons for exercising its powers. Nevertheless, it had given reasons for its decision to enter into the CommInsure Policy and it referred the Court to documents in that regard. The plaintiff did not challenge these arguments. Rein J conducted a comprehensive summary of the case law regarding whether a trustee has breached it duties, and expressed the view that the Court should consider the same test whether the trustee has provided reasons or not. In this regard, his Honour stated: When reasons are provided, the determination of whether breach has occurred may well be made easier, but this does not alter the test... From a practical point of view, I think it would be undesirable that trustees be discouraged from giving reasons for a decision, when asked, for fear that the provision of reasons would lead to a more expansive power of review than if they gave no reasons.

His Honour found that where reasons are given, the Court can have regard to those reasons in forming a view as to whether the trustee has: 1. acted for an indirect motive; 2. acted without honesty of intention; 3. acted without a fair or real and genuine consideration of whether and how the discretion should be exercised; or

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Trustees’ Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

4. acted for a purpose beyond that for which the power and discretion were bestowed on it. Where the reasons given by a trustee were of a kind which no trustee acting reasonably could arrive at or could rely on to justify the exercise of a discretion, the Court could draw an inference that the trustee acted in a manner set out in paragraphs (1) to (4) above. However, the Court was not entitled to consider whether the trustee’s decision was simply ‘unfair, unreasonable or unwise’ unwise’. It was not asserted by the plaintiff that CommInsure had wrongly rejected the claim, or that the Trustee had failed to take action against CommInsure for declining the claim. The plaintiff’s claim concerned the Trustee’s decision to enter into the CommInsure Policy in the ﬁrst place. It could therefore be distinguished from the cases where a trustee failed to form an opinion favourable to a member based on the merits of a given claim. His Honour found no evidence that: •

the Trustee's decision to enter into the CommInsure Policy was not exercised in good faith, upon fair or real and genuine consideration or for the purpose for which the power was conferred;

•

the Trustee exercised the power in an inappropriate way;

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the Trustee had an indirect motive;

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the Trustee had an absence of honesty of intention;

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there was a lack of fair consideration by the Trustee; or

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the Trustee reached a decision that no trustee acting reasonably could have arrived at.

In deciding which policy to enter into, the Trustee was bound to have regard to the benefits provided, but also the premiums payable. By entering into the CommInsure Policy, the Trustee obtained lower premiums and a freeze on premiums for three years. Further, CommInsure had agreed to match the terms in the Hannover Policy. The Trustee may not have discerned that the TPD definition in the Hannover Policy was (allegedly) less favourable to members, but legal advice had indicated that there was no discernible difference between the TPD definitions. His Honour returned to that issue, as we do, below. His Honour therefore found that the Trustee had not breached any duty owed to the plaintiff under the general law.

The SIS Act His Honour reviewed the various authorities regarding s52 of the SIS Act. His Honour considered that s52 was concerned with the process adopted by a trustee, not the outcome. His Honour found that s52 of the SIS Act did not impose a higher standard on the Trustee than the general law. The authorities were consistent with the general law that the Trustee would not be liable for any outcome that turned out to be less beneﬁcial to its members if the original decision which led to the outcome was made with the best interests of all the members in mind. The plaintiff had therefore failed to establish a breach by the Trustee under the SIS Act.

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Trustees’ Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

Outcome Judgment was entered in favour of the Trustee, and the plaintiff was ordered to pay its costs.

Ability to work part time Although the plaintiff had established no breach by the Trustee in entering into the CommInsure Policy – and hence his action failed – Rein J reviewed (and distinguished) a number of cases commonly relied upon in asserting that ‘employment’ or ‘occupation’ for the purposes of a TPD deﬁnition such as the one in the Hannover Policy means ‘full time employment’. His Honour found that there were several reasons to reject the argument that the words such as ‘unable ever to engage in or work for reward in any occupation or work’ must necessarily be construed as connoting full time work. He noted that several of the judgments relied upon in support of that proposition concerned different TPD deﬁnitions, including Chammas v Harwood Nominees, which is often relied on in support of the argument. His Honour also observed that: •

earlier cases (such as Alcoa of Australia Retirement Plan Pty Ltd v Thompson (2002) 116 FCR 139 and Nile v Club Plus Superannuation Pty Ltd [2005] NSWSC 55) have placed emphasis on context and here the plaintiff had already been working in a part time capacity when he ceased work and could still work in that capacity after he ceased work;

•

the word ‘any’ qualiﬁes ‘work’, as well as ‘occupation’;

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the term being deﬁned is ‘total total and permanent disability’ (his Honour’s emphasis); and

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cases considering one form of words in a policy should not be seen as a precedent for construing another form of words in another policy, unless the words are ‘identical or differ only in immaterial details’ (MacGillivray on Insurance Law (9th Ed. 1997, citing Coleman’s Depositories Ltd and Life & Health Assurance Association’s Arbitration, Re [1907] 2 KB 798 and Lawrence v The Accidental Insurance Company (Limited) (1881) 7 QBD 216 at 220).

In his Honour’s view, whilst in 2003 there was: ‘a prospect that the words ‘full time’ would have been implied into the TPD clause [ie. in the Hannover Policy], it is not clear that they would have been. I think that even now it is arguable that the words ‘full time’ should not be read into the clause generally or in its application to the plaintiff ‘ (emphasis added).

Causation His Honour found that to succeed, the plaintiff had to establish that had the words ‘part time’ not appeared in the CommInsure Policy, he would have been entitled to a TPD beneﬁt. However, CommInsure had actually declined the plaintiff’s claim on a number of bases, including that: •

the plaintiff failed to demonstrate that he was incapacitated in the long-term;

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Trustees’ Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

•

CommInsure considered that remedial treatment would remove any impediment to a return to (full time) work;

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the plaintiff could still work on a part time basis; and

•

the plaintiff did not satisfy the other criteria in the TPD deﬁnition.

That is, CommInsure’s decision had not turned solely on the plaintiff’s conceded ability to work part time. His Honour assumed, solely for the purpose of considering the issue of causation, that: 1. the plaintiff could not work full time; and 2. had the CommInsure Policy adopted the TPD definition in the Hannover Policy, capacity for part time work would not be an obstacle to the plaintiff obtaining a TPD benefit. His Honour found that even if these assumptions were made, the plaintiff would not have qualified for a TPD benefit. To be entitled to the TPD benefit, his Honour considered that the plaintiff needed to have been absent from work for a consecutive period of 6 months prior to ceasing to be an employee of the Bank on 25 August 2003, when he accepted redundancy. The plaintiff had not been so absent; he worked for the Bank on a part time basis up to and including 25 August 2003, when his employment ceased. After accepting redundancy, the plaintiff applied for other work. He gave evidence that had he been offered a position, he would have accepted it and resumed work. His Honour therefore viewed the plaintiff as considering himself fit to perform work (at least part time work) at the time of, and after, the redundancy. His Honour commented that ‘there is, in one sense, an inconsistency between the acceptance of redundancy and the assertion of total and permanent disability’. He also placed emphasis on the fact that the plaintiff ceased to be a member of the Fund because he accepted redundancy, not because he was unable to work. His Honour therefore found that the plaintiff would not have recovered under the CommInsure Policy even if it had not contained the words ‘part time’. The plaintiff’s claim would therefore have failed as a matter of causation even if he had established a breach of duty on the part of the Trustee, which he had failed to do.

Implications His Honour stopped short of determining whether the words ‘full time’ should or should not in fact be implied into the Hannover Policy TPD definition, as the plaintiff’s claim had failed on other grounds and it was unnecessary for him to reach a conclusion. However, his Honour’s analysis of the definition and case law is a valid and useful one. If decision makers are of the view that the TPD definitions they are applying should not be interpreted as though ‘employment’ or ‘occupation’ means full time work, this case may provide support for that interpretation. It is interesting to compare this case with the almost identical factual situation in Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 583, where Nicholas J found that the plaintiff was TPD despite having ceased work on acceptance of redundancy. Perhaps

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Trustees’ Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

this case can be distinguished on the basis that Mr Sayseng had been working in a light duties role when he accepted redundancy, whereas it appears that Mr Manglicmot only worked reduced hours. It does seem to have been common ground that Mr Manglicmot worked for just 15 hours per week as a consequence of his injuries. However, there is nothing in the judgment to indicate that this was a special job created for an injured worker. It may simply have been a part time role within the Bank. In the wake of the GFC, this factual scenario is likely to be common. Care should be taken to ensure that all circumstances surrounding the redundancy are taken into consideration in ascertaining whether such a claimant is entitled to a TPD benefit. Finally, the emphasis on ‘context’ and comparability of work capacity before and after the alleged disablement is noteworthy. The case resembles Citicorp Life Insurance Ltd v Smith [2005] FCAFC 102, where the claimant worked part time for 25 hours per week before she suffered her injury. The Full Federal Court indicated that it was appropriate for regard to be had as to whether ’there was material in [the medical evidence] that provided a basis for the Tribunal to conclude that … work (at least part-time) in this field would probably be available to her’ her’. As Rein J pointed out, emphasis was also placed on comparability of pre and post-disability employment in Nile. Brownie J indicated in Nile that regard should be had to the likelihood of a return to work in full time employment, being employment ‘generally comparable with the plaintiff’s employment before his 1996 injury’ injury’. Claimants commonly have capacity for part time work. If a policy does not specify that this rules out entitlement to a TPD benefit, the above cases indicate assessors should take into account whether the work the claimant performed prior to disablement is ‘generally comparable’ with the work he or she is capable of performing afterward.

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Trusteesâ&#x20AC;&#x2122; Duties, ties, TPD and Part Time Work: Are the Courts Reining Back? Manglicmot v Commonwealth Bank Officers Superannuation Corporation [2010] NSWSC 363 by Lisa Norris & Michael Iacuzzi

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

Michael Iacuzzi Senior Associate T: 02 8257 5769 michael.iacuzzi@turkslegal.com.au

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