As the number of claims for Income Protection (IP) and Total and Permanent Disablement (TPD) benefits rise, the duties owed to a life insured by insurers and trustees and more importantly, whether those duties have been discharged are increasingly the subject of scrutiny.
In Finch v Telstra Super Pty Ltd (2010)[i], the High Court set out the duties owed by trustees, unanimously holding that trustees owe a duty to act in good faith with real and genuine consideration of the material before it and to make decisions for sound reasons. The High Court explained that this includes a duty to take into account and seek information and evidence.
In Hannover Life Re Of Australasia Limited v Sayseng [ii] the Court held that “if for any reason, the Trustee has failed to discharge its duties in considering the member’s claim; the appropriate order is to refer the matter back to the Trustee.” The High Court did exactly that in Finch, and remitted the matter back to the trustee for determination.
The decision of Erzurumlu v Kellog Superannuation Pty Ltd [iii] dealt with the obligations of insurers. The New South Wales Court of Appeal held that an insurer owes a duty of good faith to the Plaintiff, analogous to the duty of good faith owed by trustees pursuant to the principles enunciated in Finch. If an insurer is found to have breached its duty of good faith, the Court can elect to substitute its own decision for that of the insurer.
GATHERING INFORMATION & COMPETING BODIES OF EVIDENCE
More often than not, trustees and insurers are presented with competing evidence which leads to different conclusions as to whether the life insured is entitled to a benefit under the policy. As noted, the insurer/trustee must issue a decision which is informed and made in good faith. Although, it is open to the insurer/trustee to prefer the evidence of one or two experts over the evidence of others, Finch held that if a consideration is not properly informed, then it is not genuine.
In these circumstances, the insurer/trustee must be able to show that they considered all evidence and if certain evidence was preferred, be able to demonstrate that it reasonably relied on that evidence in making its decision. Examples of reasonable reliance may include preferring evidence on the basis of expertise, duration and/or frequency of treatment.
On the other hand, it may be prudent (and/or necessary where the inconsistency is obvious) for the insurer/trustee to write to experts to obtain further information or to clarify the inconsistency and/or obtain new expert opinion in an effort to resolve the conflict.
PROCEDURAL FAIRNESS & GIVING THE LIFE INSURED THE OPPORTUNITY TO RESPOND
Typically, before a decision is issued, an insurer/trustee affords the life insured procedural fairness by offering them an opportunity to present additional evidence and/or comment upon the preliminary decision reached.
However, in Hannover the Court held that the insurer/trustee should go a step further. The Court held that insurers/trustees must ensure that life insureds are given the opportunity to respond to each and every piece of material/evidence that is intended to be relied upon and make submissions and respond before a decision is made. In Hannover, the insurer relied on two adverse medical reports which were based on surveillance tapes. The Court held that the insurer ought to have given the Plaintiff the chance to see and respond to the medical reports and the surveillance tapes and the Plaintiff should have been given the opportunity to comment upon and rebut the evidence before the declinature was issued.
In Alcoa of Australia Retirement Plan Pty Ltd v Frost (2012)[iv] the Victorian Court of Appeal held (applying Finch) , that a trustee/insurer is not required to do the impossible and go on an endless “pursuit of perfect information in order to make a perfect decision.” However, if there is imperfect information, it will not be good enough to discharge the duty by simply inviting the life insured to submit further material. This means, the trustee itself is bound to make further enquiries that are available on the material or ask the Plaintiff in precise terms exactly what information is needed.
The High Court has made it clear that the “real and genuine consideration test” is more stringent and intense for superannuation trustees (and consequently for insurers) than the test to be applied to other types of trustees (e.g. deceased estate trustees, etc). Insurers and trustees are reminded not to make hasty decisions and to ensure the robustness of their decisions by giving real and genuine consideration to the evidence before it. In order to minimise the risk of having a decision attacked and/or reviewed, the following steps should be undertaken:
- Ensure all evidence is reviewed and considered;
- Prior to issuing a decision, ensure a procedural fairness letter is sent which lists the evidence/material which has been considered; explains what evidence/material is missing (if necessary) and give the life insured an opportunity to respond;
- If there is competing evidence, ensure there is a sound reason to prefer certain evidence. Otherwise, obtain further evidence from experts or the life insured; and
- Make timely decisions.