This time of year traditionally brings extreme weather conditions throughout Australia that inevitably result in a range of insurance claims. 2014 appears to be no exception with much of Australia (especially South Australia, New South Wales and Victoria) being battered by extreme weather conditions and bush fire.
In the past, Insurers have received negative publicity in relation to a public perception of delay in assessing insurance claims, especially claims arising from natural disaster events. This article considers a 2013 New South Wales Supreme Court decision that acts as a reminder that Insurers are entitled to take time in assessing claims so long as they act reasonably in satisfying themselves of the Insured’s entitlement. In doing this, the Insured is entitled to interest under section 57 Insurance Contracts Act 1984 (Cth) (ICA) only from the time that ‘it was unreasonable for the insurer to have withheld payment of the amount.’
De Smeth v NSW Fire Brigades Superannuation Pty Ltd  NSWSC 19
In January 2013 the New South Wales Supreme Court delivered its decision in De Smeth v NSW Fire Brigades Superannuation Pty Ltd  NSWSC 19. The matter involved Mr De Smeth who was formerly a member of the NSW Fire Brigade and who held a life insurance policy with the Brigade’s superannuation fund (the Policy).
The Policy provided that in the event that an off-duty injury resulted in the total and permanent incapacity of an insured person, who was a permanent fire fighter, a lump sum benefit was payable.
Mr De Smeth was a permanent fire fighter. In February 2009, while off duty, he was involved in a motor vehicle accident and suffered significant injury to his right leg. Mr De Smith made a claim for total and permanent incapacity on 29 October 2009 under the Policy and was paid a lump sum of $310,000 on 6 September 2011. The question for the Court was whether Mr De Smeth was entitled to interest and from what date such interest should accrue.
Section 57 ICA states that:
(1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
- the day on which the payment is made;
- the day on which the payment is sent by post to the person to whom it is payable.
The Court adopted the approach taken by Cole J in Bankstown Football Club Limited v CIC Insurance Ltd (Supreme Court Of New South Wales, Cole J, 17 December 1993, unreported) in which Cole J said:
“In my view, section 57 is directed to a determination of the point of time at which empirically, it can be stated that it was unreasonable to decline to make payment.”
It was with this view that the Court considered the factual scenario in De Smeth. It was noted that the definition of total and permanent incapacity in the Policy did not require the incapacity to be immediate (i.e. from the date of the initial injury/accident).
When Mr De Smeth made his claim for total and permanent incapacity in October 2009 the NSW Fire Brigade’s medical officer made a report dated 23 October 2009 which stated:
“I agree with Dr Nott that while Mr De Smeth has not reached maximal medical improvement, he is highly unlikely to improve to the point where he is able to perform fire fighting duties with a reasonable margin of safety in the foreseeable future.”
In a report of 6 August 2009 Mr De Smeth’s treating orthopaedic surgeon, Dr Nott, said that Mr De Smeth remained significantly disabled and that it would be two years before Mr De Smeth would reach maximal medical improvement.
In December 2009 Mr De Smeth’s claim for total and permanent incapacity was rejected on the basis that the medical evidence was unable to provide a long term forecast of Mr De Smith’s injuries. There was still the possibility that his condition could improve and there was no emphatic evidence that he was totally and permanently incapacitated.
Over the course of the next 18 months there was a series of medical reports in relation to Mr De Smeth’s injury. Generally, these reports noted improvement in Mr De Smeth’s healing and recovery and advised that the injury had not yet stabilised and that further medical attention was required. The Insurer was updated throughout this process and the Court did not criticise it for any delay in responding to medical evidence received within this time.
On 7 July 2011 the Insurer received a report from Dr Nott dated 30 June 2011 that advised that Mr De Smeth’s injuries had stabilised and that it was not expected that there would be significant improvement.
On 18 July 2011 the Insurer accepted the claim on the basis of Dr Nott’s report of 30 June 2011 where the view was expressed that Mr De Smeth’s injury would not improve.
The claim was paid on 6 September 2011.
The Court found that the Insurer had acted reasonably throughout in responding to, and waiting upon, further medical evidence before reasonably admitting the claim on 18 July 2011. The Court held that interest should run from when the claim was admitted by the Insurer on 18 July 2011 to when payment was made on 6 September 2011.
This decision will give some comfort to insurers. It shows that for an insured to claim interest under section 57 ICA the onus remains on it to prove that the insurer was manifestly unreasonable to decline, or in delaying to make, payment of a claim. The insured will have to demonstrate that there was a bona fide dispute regarding entitlement and that there is empirical evidence that the insured was entitled to payment of the claim at an earlier date.