In December 2012 we reported on recent cases concerning section 57 of the Insurance Contracts Act 1984 (Cth) (ICA).  In particular, we considered the question, “How long is “reasonable” for an insurer to consider a claim and withhold payment?”.  The recent case of De Smeth v NSW Fire Brigades Superannuation Pty Ltd [2013] NSWSC 19 considered ICA s 57 in the context of a total and permanent incapacity claim. 

Further support of Justice Cole’s judgment in Bankstown Football Club v CIC Insurance Ltd [unreported, NSWSC, 17 December 1993]

In De Smeth v NSW Fire Brigades Superannuation Pty Ltd, Justice Gzell noted that Justice Cole’s views in Bankstown Football Club v CIC Insurance Ltd [unreported, NSWSC, 17 December 1993] have been adopted and applied in a number of cases. In that case, 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 a payment. That decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.

If there was liability found and the insurer to pay, then the presumption must be that the insurer would be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.

A reasonable period is to be given to the insurer to investigate and determine its position but if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to me to be the correct interpretation of section 57(2), particularly in circumstances of section 57(1) of the Act, where an insurer is liable to pay to a person an amount under a contract of insurance."

Interest claimed by Mr De Smeth in relation to his “Total and Permanent Incapacity claim”

Mr De Smeth was a member of the New South Wales Fire Brigade. He was injured in a motor vehicle accident on 21 February 2009 whilst off-duty. He suffered a broken tibia and fibula, and injury to his knee.

Mr De Smeth was a member of the Crown Employees (NSW Fire Brigades Firefighting Staff Death and Disability) Superannuation Fund of which NSW Fire Brigades Superannuation Pty Limited, the first defendant, was a trustee. The trustee maintained a group life insurance policy with Suncorp Life and Superannuation Limited, the second defendant. The policy included payment of a lump sum benefit in the event of an off-duty injury resulting in total and permanent incapacity.

Mr De Smeth’s claim was ultimately accepted and he was paid $310,000 on 6 September 2011. The sole question for determination was whether Mr De Smeth was entitled to interest, and, if so, the date from which interest should run.

Section 57 of the ICA entitles an insured to interest (in accordance with section 57(2)) for “the period from which it was unreasonable for the insurer to have withheld payment” of indemnity under the policy.

Mr De Smeth made his total and permanent incapacity claim on 29 October 2009. He originally sought interest from the date of his accident on 21 February 2009 which he said was the date from which he was totally and permanently incapacitated, but later (in his Statement of Claim) sought interest from 15 December 2009 (the date of a letter from the trustee containing an initial view of the claim formed on the basis of the information available at that time that the injury did not meet the definition of Total and Permanent Incapacity, because there was no medical opinion supporting that conclusion).

Justice Gzell said that the commercial reality of considering a claim for total and permanent incapacity was that “[a] medical practitioner of the opinion that a firefighter’s injuries have not stabilised will not certify total and permanent incapacity until the injuries have stabilised or have reached the point where it is unlikely that there will be any improvement and the firefighter is declared to be totally and permanently incapacitated by the medical practitioner.” He rejected the argument that the trustee, by accepting liability, accepted that Mr De Smeth was totally and permanently incapacitated when he left the firefighting service upon sustaining his injury on 21 February 2009.

Justice Gzell also rejected that the letter dated 15 December 2009 marked “a time at which it could be said that it was unreasonable of Suncorp to decline to make payment to Mr De Smeth under the policy”, because of the inability of the various doctors to give a long term forecast of Mr De Smeth’s injuries, such that the obtaining of further medical reports was appropriate. Indeed, the letter dated 15 December 2009 invited Mr De Smeth to provide further information in support of his claim.

In the following period, further information and doctors’ reports were provided. These suggested improvement in Mr De Smeth’s condition, noting that the fractures were healing, that the right tibial nail was to be removed, and that his condition might improve about three months after that. Approximately three months after the tibial nail extraction Suncorp asked for a further report. For the first time, in his report dated 30 June 2011, Dr Nott expressed his opinion that Mr De Smeth’s injuries had stabilised and he was not expecting any significant improvement in his condition. Dr Nott’s report was received by Suncorp on 7 July 2011.

On 11 July 2011, Suncorp recommended that the trustee accept the claim, and the claim was admitted on 18 July 2011. The claim was paid on 6 September 2011.

Justice Gzell held:

“Suncorp and the trustee acted with dispatch upon receipt of the letter on 7 July 2011 in admitting the claim on 18 July 2011. It is from that date until payment on 6 September 2011 that interest should run.”

Conclusion

The case again illustrates that interest runs from the day from which it was unreasonable for the insurer to have withheld payment. An insurer is entitled to a reasonable period of time to investigate a claim. When an insurer has sufficient information in relation to a claim and it, therefore, becomes unreasonable for an insurer to withhold payment of the claim (determined objectively taking into account the type of case, the circumstances of the case, the probable issues which require investigation and whether requested documents have been produced) interest will become payable from that date.

Of course, if an insurer wrongly denies a claim, even if there was a reasonable basis for doing so, it must pay interest from (at least) the time it wrongly denies the claim.