The recent case of TAL Life Limited v Shuetrim (2016) NSWCA 68 (7 April 2016) raises a number of issues in relation to the assessment of a superannuation fund member's claim for insured total and permanent disablement benefits. The case considered what were the duties of the insurer and trustee where the insurer was to form the opinion and what was required to establish total and permanent disablement (TPD) where the insurance policy used a definition based on the definition in the SIS regulations prior to their amendment on 1 July 2013.
Duties of the insurer and trustee
The trust deed provided, as is commonly the case that the insured benefit was only payable to the extent that the trustee receives payment from the insurer under the policy. The policy required proof to the satisfaction of the insurer.
The entitlement is not dependant on the formation of the opinion by the trustee but entirely on the opinion of the insurer. The insurance policy pre-dated the amendments to section 13 of the Insurance Contracts Act 1984 in 2013 which extended the duty of utmost good faith to a third party beneficiary.
The case did not need to consider the basis on which the claimant sued - whether it was breach of duty owed directly to him by the insurer or for breach of duty owed by the insurer to the trustee, the trustee being unwilling to take action, as the insurers conceded standing.
The basis of claim is relevant from a trustee point of view, as breach of trustee duty would raise issues as to costs where the insured took direct action against the insurer and also successfully claimed breach of trustee duty. Whereas direct duty owed by the insurer would mean the trustee is effectively not involved. Having regard to the fact that the trustee is not the one that forms the opinion, the most it could do is consider whether the insurer is in breach of contract, and if the trustee considered the insurer to be in breach, whether it should take action.
The court also considered where it disagrees with the insurers' decision, whether it substitutes its own decision or remits to the insurer.
In the Edwards v The Hunter Valley Co-Op Dairy Limited (1992) 7 ANZ Ins Cases 61-113 at 77,537 McLelland J stated that an insurer cannot rely on the non-fulfilment of a condition if fulfilment was prevented by its own default, and in such an event the issue upon which the insurer's opinion was required to be formed would become one for determination by the court.
The court considered decisions in other states, being appeal decisions following Edwards. The court concluded that the Edwards case should not be overturned. Thus the position remains that the court will substitute its own opinion in an appropriate case.
The court distinguished the situation in Finch v Telstra Super Pty Ltd (2010) HC 36 where the trustee forms the opinion, as the formation of such opinion is subject to the trustee's fiduciary duties. Therefore a court will remit to the trustee, whereas in the case of an insurer it does not owe such a duty.
Section 52(7)(d) of the SIS Act should not require more than the trustee to be satisfied the insurer is complying with the contract and is doing so in a timely manner. It is not for the trustee to determine if the member is TPD, as it is not the trustee that forms the opinion. The trustee would also need to be satisfied that it was an opinion formed consistent with the contract terms.
Meaning of 'unlikely ever'
After discussing a number of cases, the Court said at paragraphs 88- 89 …'what flows from the ordinary meaning of the language of 'unlikely ever', namely, that where there is a real chance that a person may return to relevant work, even though it could not be said that a return to relevant work was more probable than not, the insurer would not be satisfied that the definition applies. 'Unlikely ever' is, in this context, much stronger than 'less than 50%'.
What follows is this. To make an assessment of TPD, it is not sufficient for the insurer to be satisfied that it is more likely than not that the person will never return to work. On the other hand, if there is merely a remote or a speculative possibility that the person will at some time in the future return to relevant work, an insurer will not, acting reasonably and in compliance with its duties, be able to be satisfied that the person is not TPD. The critical distinction is between possibilities which are readily contemplatable even though they may not be more probable than not, and possibilities which are remote or speculative. A real chance that a person will return to relevant work, even if there is less than 50%, will preclude an Insured Person being unlikely ever to return to relevant work.'
Thus it can be seen in particular with younger claimants that the phrase 'unlikely ever' is a substantial hurdle to overcome.
For those insurers simply following the post 1 July 2013 SIS regulations definition of 'unlikely' without the word 'ever' this standard would be lower.
There is of course no obligation to have a TPD definition in the insurance policy that follows the SIS definition. It is open to insurers to impose a higher test. The issue for trustees is what is appropriate having regard to what is available in the market place, particularly as insurers are currently reviewing the scope of the terms of TPD cover.
Trustees have a duty to be satisfied that the insurer complies with the insurance contract. There is no point in deciding whether or not the trustee is satisfied as to whether the member meets the definition, as it is purely a question for the insurer. The trustee needs to be satisfied that the decision is open on the materials before the insurer and that the insurer in considering the claim met its duties to the trustee and the insured member. The claimant must have been given the opportunity to put evidence to the insurer usually including the opportunity to rebut the insurers expert evidence and that the insurer did not knowingly exclude relevant material.