When has a TPD benefit "accrued"?

This Victorian Court of Appeal decision of MLC v Daffy on 15 May 20171 confirms a total and permanent disability (TPD) benefit does not "accrue" at the time of injury, but rather only accrues once all elements of the relevant TPD definition are satisfied. That is, in addition to an injury or illness being suffered, the insured must also have been absent from their occupation due to sickness or injury for the requisite period of time.

KEY IMPLICATIONS FOR YOUR BUSINESS

Subject to the words of the relevant policy, an insured or member will only accrue an entitlement to a TPD benefit upon satisfying the first and second limbs of the relevant TPD definition. 

FACTS OF THE CASE

On 14 October 2010 the plaintiff suffered a prolapsed disc in his lower back. As a result, the plaintiff was absent from work for a period of approximately four weeks. On 24 May 2011 the plaintiff's employment was terminated (the termination was unrelated to the injury). MLC conceded he would have ceased work on account of his injury in late July 2011, had his employment not been terminated.
 
The group policy provided upon a member ceasing to be employed by a Participating Employer, the definition by which entitlement to a TPD benefit was assessed, changed (except for benefits that had already "accrued"). Specifically, it changed from a standard education, training and experience (ETE) definition to a definition requiring the member to be unable to perform two Activities of Daily Living (ADL). MLC rejected the claim as he did not satisfy the ADL TPD definition.
 
The plaintiff argued his entitlement to TPD should be assessed under an  ETE definition, as his entitlement to the benefit had accrued prior to his termination on account of the injury and because thereafter he was unable to carry out all of his normal occupational duties as a general manager.
 
On appeal it was held the case involves a pure question of construction: specifically, the proper construction of cl 27.1(e) of the policy. Clause 27.1 deals with cessation of liability under the policy. It provides:
 

27.1 Notwithstanding any other provision contained in this Policy, MLC’s liability to pay any Benefits which have not already accrued in respect of a Member shall cease on the occurrence of the earlier of any of the following events:
...
(e) on the date the Member ceases to be an employee of a Participating Employer … (emphasis ours).

THE KEY ISSUE IN QUESTION

The key issue was whether the TPD benefit claimed was a benefit that had accrued at the time his employment terminated on 24 May 2011.

DECISION

The construction of ‘accrued’
 
MLC contended a TPD benefit is not an accrued benefit until all elements of the relevant TPD definition are satisfied. The plaintiff contended a TPD benefit accrues upon the happening of the injury which is the foundation for the subsequent TPD claim. The Court of Appeal agreed with MLC and found that the TPD benefit had not accrued until the first and second limbs were satisfied.
 
The Court considered the ADL TPD definition is not one that is easily satisfied, but commented:
 

That is not a sufficient basis upon which one might torture the language of cl 27.1 of the policy so as to hold that in a particular case of injury, a TPD benefit that might subsequently be payable (and paid) under the policy is an accrued benefit at the time of injury, and no matter what part any such injury might ultimately be found to play in any subsequently determined disability.

 
In support of his submission that a TPD benefit could accrue before the expiration of the six consecutive month period, the plaintiff relied upon the discretion referred to at the end of the ETE TPD definition (which he alleged applied), that is:
 

Where it can be clearly established to MLC’s satisfaction that the Member is Totally and Permanently Disabled MLC may pay at MLC’s discretion the Sum Insured before the end of the six consecutive months’ period of absence from their Occupation.

 
Although it was held that in the event the discretion is exercised favourably in a particular case, the TPD benefit could properly be described as having accrued for the purposes of the operation of cl 27.1. That is not to say the mere existence of a discretion that has not been exercised in a member’s favour results in a TPD benefit accruing prior to the satisfaction by the member of the relevant elements of the definition.
 
MLC was therefore granted leave to appeal, the appeal was allowed and the orders made at trial in favour of the plaintiff were dismissed.

1[2017] VSCA 110

Catherine McAdam Special Counsel

Catherine is an insurance law specialist. Her expertise covers all aspects of life insurance, including claims (including TPD, Income Protection, personal accident and sickness, and group life policies), PDS reviews, and disputes.

Catherine's insurance law expertise covers all aspects of life insurance, including claims (including TPD, Income Protection, personal accident and sickness, and group life policies), PDS reviews, and disputes.

Her clients include Westpac Life Insurance Services Limited, Colonial Mutual Life Assurance Society Limited, TAL Life Limited, MLC Ltd, OnePath, Challenger Life Company Ltd as well as superannuation trustees.

Catherine acted on behalf of the trustee in the July 2011 NSW Court of Appeal decision of Manglicmot v CBOSC. This case considered whether a person who can only work part time is TPD as well as the duties imposed on trustees by s. 52 Superannuation Industries (Supervision) Act.

Catherine advises life insurers on non-disclosure and misrepresentation issues, as well as policy coverage. She has defended claims for insurers in NSW, Victoria, the ACT and Adelaide, including in the NSW Court of Appeal. Catherine has provided extensive advice regarding the impact of the 2014 changes to the Insurance Contracts Act and the implications for policy wordings. She also drafts submissions on behalf of insurers to FOS.

Catherine has a high rate of success in resolving matters using ADR techniques, including mediation.

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