When Does Total Disability Commence Under an Income Protection Policy? by Ros Wicks and Alph Edwards | April 2007 Area of Expertise | Life Insurance
Introduction The Supreme Court of New South Wales has held that for total disability to occur under an income protection policy, all elements of total disability, as defined under the policy, must be satisfied1. The Court also held that the phrase “under the regular care and attendance of a medical practitioner” connotes more than one visit to a doctor. Rather, repetitive medical assistance and a series of appointments are required. Finally on the question of costs, the Court held that the plaintiff should pay the insurer’s costs on an indemnity basis given that the plaintiff had earlier rejected a Calderbank offer which had proposed that each party “walk away” and pay their own costs. In this regard the Court noted that the NSW Court of Appeal in Leichhardt Municipal Council v Green2 had held that a “walk away” offer could be a genuine offer of compromise.
The Background The plaintiff was a self employed engineering supervisor who has an income protection policy with the insurer. The policy has a life time benefit period for total disability occurring as a result of injury but only a 5 year benefit period for total disability occurring as a result of sickness. Total disability occurred when an insured was: •
unable to perform at least one income producing duty of his or her occupation;
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not working; and
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under the regular care and attendance of a medical practitioner.
Crucially, the policy also provided if the insured’s “total disablement does not start until 30 days after the date of an injury, we will treat the cause as a sickness” . The plaintiff made a claim under the policy in January 2000 in relation to a work injury to his right knee on 11 August 1999. The insurer admitted the claim and benefits were paid to 27 February 2000 when the plaintiff returned to work.
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The plaintiff lodged a further claim in September 2002 in respect of the same incident on 11 August 1999 (the second claim) following an arthroscopy to his knee. The insurer treated the second claim as a separate and new claim rather then a continuation of the first claim in accordance with the policy terms as it determined the plaintiff had been working full time for more then 6 months since the first claim had closed. Moreover, the insurer treated both claims as arising as a result of sickness meaning the benefit period was restricted to 5 years. The plaintiff, who is continuing to receive benefits under the policy, sought a declaration from the Court that he had sustained an injury in the terms of the policy.
The Hearing The critical question was whether the plaintiff was totally disabled within the meaning of the policy within 30 days of his injury on 11 August 1999. The plaintiff asserted that he was so totally disabled and therefore, the cause of any total disability was injury not sickness. It was also submitted by the plaintiff that he did not return to full time work following the payment of benefits in respect of the first claim for a period in excess of 6 months despite the fact that he did not claim the further benefit until September 2002. The plaintiff gave evidence at the hearing that he had a number of days off work in the initial 30 days after the injury in August 1999 and described his absence from work due to the injury. He had only consulted a doctor once during this 30 day period and had no treatment. It was argued by the plaintiff that a single attendance upon a doctor constituted regular care and attendance as required by the definition of total disability. The insurer argued that the evidence indicated that the plaintiff continued to work in the initial 30 days after the injury and he was not under the regular care or attendance of a medical practitioner. Also, there was no evidence that the plaintiff was unable to fulfil the income earning duties of his occupation at this time. The submission was put by the insurer that to accept the narrow construction of total disability as proposed by the plaintiff would make a nonsense of the partial disablement clauses in the policy which specifically provided for circumstances in which an insured’s earning and work capacity were reduced. At best, the plaintiff may have been partially disabled during the 30 day period but was not totally disabled under the terms of the policy.
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The Judgment Justice Gzell found the following: •
None of the plaintiff’s absences from work in the 30 day period following the injury in August 1999 were as a result of that injury. In this regard, his Honour was not satisfied that there was work for the plaintiff to perform during this period and several of the dates nominated by the plaintiff as days he was absent from work were in fact weekends.
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There was no evidence that the plaintiff could not perform any income producing duties during this 30 day period. He lost no income during the period and his employer had paid him as it had done previously.
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“Regular care and attendance of a medical practitioner” constituted more than one visit to the doctor and connoted repetitive medical assistance and regular attendance connotes a series of appointments.
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The plaintiff had failed to establish that at any time between 11 August 1999 and 11 September 1999 he satisfied the three conditions of the total disability definition.
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Given the plaintiff did not satisfy the definition of total disability until about the time he lodged his first claim form on 24 January 2000, i.e. more than 30 days after the August 1999 injury, the insurer was entitled to treat the cause of the total disability as a sickness.
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Whilst it was not necessary to decide this point given the finding with respect to the “sickness” issue, as the plaintiff had returned to work for a period over 6 months between the two claims, the insurer was entitled to treat the second claim as a separate claim under the policy.
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On the basis of the above, the plaintiff had failed to obtain the relief sought and judgment was entered for the insurer.
In a separate judgment on costs delivered the day following the primary judgment, Justice Gzell found that the insurer’s Calderbank offer made prior to the trial that each party “walk away” and pay their own costs, was a genuine offer of compromise. Further, his Honour found that it was unreasonable to reject this offer bearing in mind that the plaintiff was in a position to assess the merits of the offer, he having the knowledge at the relevant time of the evidence upon which the case would turn.
Implications This case is authority for the fact that a total disability definition such as that contained in the present policy, requires each and every limb of the definition to be established before that condition is said to arise and liability flows. That is, liability does not arise simply because an injury is sustained which may in the future, give rise to a total disability. Furthermore this judgment is a very useful authority for the proposition that a single attendance upon a medical practitioner is insufficient to establish that an insured is under the regular care and attendance of a medical practitioner. This will be of great interest to life insurers bearing in mind this or similar wording is used in most income protection policies.
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Finally, the case confirms that an offer to “walk away” with each party to pay their own costs can amount to a genuine offer of compromise which can give rise to an indemnity costs order.
Footnotes 1
Atton v National Mutual Life Association of Australiasia [2007] NSWSC 310
2
[2004] NSW CA 341
For more information, please contact:
Ros Wicks Senior Associate T: 02 8257 5741 ros.wicks@turkslegal.com.au
Alph Edwards Partner T: 02 8257 5703 alph.edwards@turkslegal.com.au
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