Hannover Life Re of Australasia Ltd v Wright [2014] FCA 1163

  • Following an appeal by Hannover Life Re of Australasia Ltd (Hannover Life), the Federal Court has set aside a determination of the Superannuation Complaints Tribunal (the Tribunal) which ordered the redrafting of a total spine exclusion clause under insurance arrangements with UniSuper Limited (USL) in respect of optional death and disablement cover.  In doing so, the Federal Court held the Tribunal erred in its exercise of determination-making power under section 37 of the Superannuation (Resolution of Complaints) Act 1993 (Cth) (the Complaints Act).
  • Adhering to recent Federal Court authorities, the decision confirms that the Tribunal is not empowered to engage in an exercise of judicial power and, as such, its task is not to determine all the rights and obligation of parties.  Rather, the Tribunal must decide whether any decision of the trustee or insurer was and is unfair or unreasonable.
  • The decision also affirms that, notwithstanding the provisions of the governing rules or insurance policy terms under a superannuation scheme, it is not the place of the Tribunal to make decisions that are contrary to those rules or policy terms.  If the governing rules and policy terms themselves are to be challenged, that challenge may only be mounted in a Court.

Background

In the period from 1 January 2007 to late 2011, Ms Paula Wright, the first respondent, was employed by various universities and in May 2007, joined a superannuation fund named UniSuper.  USL, the second respondent, is the trustee of UniSuper.  On 10 February 2011, Ms Wright informed USL that she was interested in increasing the death and disablement cover provided to her when she joined UniSuper.  At that time, she had one unit of such cover which was the basic level or default cover.  On the same day, USL sent to Ms Wright a copy of UniSuper’s Optional Insurance Guide (the Guide).

On 19 July 2011, Ms Wright completed and lodged with USL, a UniSuper Death and Disablement Insurance Application (DDI Form) whereby she sought to increase her total death and disablement cover to ten units overall.

Both the Guide and the DDI Form stated that USL had taken out group life policies with Hannover Life to provide the optional insurance cover described in the Guide.  In the Guide, USL states that all optional insurance cover was subject to the conditions and terms set out in the insurance policy documents.  The death and disablement cover sought by Ms Wright was contained in a contract of insurance between USL, in its capacity as trustee of UniSuper, as proposer, and Hannover Life, as insurer.

In the DDI Form, Ms Wright disclosed that she suffered from occasional back pain, the onset of which had commenced in 1998.  Based upon internal underwriting advice, Hannover Life decided to offer increased death and disablement cover to Ms Wright.  However, the additional units of disablement cover were provided on terms that the additional five units were to be subject to a total spine exclusion owing to Ms Wright’s medical history.

By letter dated 7 September 2011 to USL, Ms Wright queried the fact that USL and Hannover Life had imposed the total spine exclusion as a condition of the offer made to her.  In that letter, she said:

this special condition would seem to exclude every single muscle or spine injury which could conceivably occur.  If I were to suffer paralysis because a meteor landed on my head, for example, I would not be covered.

Ms Wright did not initially accept the total spine exclusion sought to be imposed in respect of her increased disablement cover.  However, on 27 October 2011, she did accept the cover on terms which included the total spine exclusion.  She did so, in effect, on a ‘without prejudice’ basis.

In the meantime, Ms Wright had lodged a complaint with the Tribunal complaining about the inclusion of the total spine exclusion in her disablement cover.  In January 2012, Hannover Life was joined as an additional party to Ms Wright’s review proceeding in the Tribunal.  Conciliation of Ms Wright’s complaint was unsuccessful.

The Decision of the Tribunal

In its reasons, the Tribunal stated its role was to determine whether the decision of Hannover Life and USL to reduce the level of cover offered to Ms Wright and ‘impose an exclusion in relation to any injuries to her spine were fair and reasonable in their operation’.

In its decision, the Tribunal took the view that it was fair and reasonable in the circumstances for Hannover Life to impose an exclusion in accordance with its underwriting guidelines.  However, the effect of the exclusion drafted meant Ms Wright could be involved in an event and suffer injuries to her back which are unrelated to her current back conditions, and she would be excluded from receiving a benefit.  In the circumstances, the Tribunal found the exclusion operated unfairly and unreasonably in relation to Ms Wright.  Accordingly, the Tribunal ordered that USL redraft the total spine exclusion so as to state that the exclusion does not apply in this event.

The Decision of the Federal Court

Hannover Life filed a Notice of Appeal to the Federal Court from the Tribunal’s decision.  It named Ms Wright and USL as respondents in that Appeal.  Ms Wright did not participate at all in the proceeding before the Federal Court and USL adopted a position of neutrality.

Hannover Life contended that the Tribunal had no power to interfere with the contract of insurance between USL and Hannover Life, or with the terms upon which death and disablement cover would be offered by USL and Hannover Life to members of UniSuper.  Alternatively, Hannover Life contended that the decision of the Tribunal to vary the total spine exclusion was unfair and unreasonable.

In its submissions, Hannover Life placed emphasis upon section 37 of the Complaints Act which sets out the powers of the Tribunal in reviewing a decision of a trustee.  Relevantly, section 37(5) states the Tribunal ‘must not do anything’ that would be ‘contrary to law’, ‘to the governing rules of the fund concerned’ and the terms of the contract of insurance ‘between an insurer and trustee’.  Hannover Life also relied upon an affidavit affirmed by Mr Roel Roozendaal who was the underwriter employed by Hannover Life who assessed Ms Wright’s application for additional death and disablement cover.  Mr Roozendaal advised that the total spine exclusion should be included as a term of that cover.

When making its determination, the Tribunal did not consider whether section 37(5) of the Complaints Act prevented it from doing so.  As such, Hannover Life submitted that the variation to the total spine exclusion clause which the Tribunal ordered infringed section 37(5) of the Complaints Act.  Hannover Life relied upon two decisions of the Federal Court and observations made by Kirby J in a decision of the High Court.[1]

Foster J provided a useful summary of the existing body of case law with respect to the Tribunal’s obligations in considering a complaint under section 37 of the Complaints Act.  Applying and affirming the reasoning in the cited authorities, Foster J concluded that the role of the Tribunal was to form a view, from the perspective of the trustee or insurer, as to whether the decision of either was (recognising the overriding framework given by the governing rules and policy terms, respectively) unfair or reasonable.

Foster J found that, as between USL and Hannover Life, Hannover Life had a contractual entitlement under the policy to impose terms and conditions on the cover granted to any particular member including exclusion clauses.  Additionally, a member of UniSuper who seeks additional death and disablement cover does so upon the terms and conditions set out in the policy.  The evidence of Mr Roozendaal, in Foster J’s view, also made clear that he advised that the total spine exclusion be made a term of Ms Wright’s additional death and disablement cover because, in his opinion, that was what was required by the application of Hannover Life’s underwriting guidelines.

In these circumstances, Foster J stated:

When the Tribunal redrafted the total spine exclusion clause which USL imposed on the cover granted to Ms Wright it did something which was contrary to the governing rules of the fund and to the terms of the policy.  Section 37(5) of the Complaints Act prevented it from doing so.  For these reasons, it was not entitled to order the variation which it ordered to the total spine exclusion clause imposed by USL and Hannover Life.

Accordingly, Foster J decided that the appeal should be allowed and orders were made to set aside the Tribunal’s decision to redraft the total spine exclusion clause and reinstate it.

Key Lessons

  • By re-examining the powers of the Tribunal, the Federal Court has affirmed that the overriding consideration for the Tribunal must be the trust rules and insurance policy terms when considering whether a decision is unfair or reasonable.  It is not within the scope of the Tribunal’s powers to make decisions contrary to those rules or policy terms.
  • The Federal Court has confirmed that the Tribunal must decide whether the decision of a trustee or insurer is made under and in conformity with the governing rules or terms of the policy and not whether there is some perceived (whether rightly or wrongly) unfairness or unreasonableness in the conduct of the fund.
  • The decision underscores that the Tribunal is not empowered to vary a special exclusion imposed under trust rules or insurance policy terms, or to accept a risk which involves a significant departure from an insurer’s underwriting rules.  A trustee or insurer has a broad entitlement to autonomously underwrite policies.  The prospect of challenging an underwriting acceptance decision is low.