The NSW Court of Appeal1 has clarified the interpretation of TPD clauses and confirmed the court's power to determine TPD.
The phrase 'unlikely' in TPD clauses does not mean improbable in the sense of 'less than 50 per cent'. A real chance that a person will return to work to which they are suited, even if it is less than a 50% chance, will preclude an insurer from finding that an insured person is unlikely ever to return to work. Conversely, if there is merely a remote or speculative possibility that an insured person will return to work then the phrase "unlikely ever" is satisfied.
Weight will be given to medical opinions provided well after the date of assessment as these are relevant to the insured person being able to return to work - the court does not speculate "where it may know".
An insurer can prefer medical opinions in respect to an insured's ability to work in preference to statements from an insured which are inevitably self-serving. In particular, an insured does not have sufficient expertise to comment on whether they are unlikely ever to work again.
The court confirmed that it can substitute its own opinion for an insurer's opinion, rejecting TAL's argument that the court could not rewrite the parties contract.
The decision leaves unresolved whether an insurer owes a duty of utmost good faith to the member of a superannuation fund (although the court confirmed the existence of a duty of good faith and fair dealing) and provided little guidance regarding the requirement of procedural fairness.
The plaintiff was a police officer who was medically discharged following exposure to a series of traumatic events, causing an anxiety disorder. He also suffered left elbow epicondylitis, and was a qualified and experienced mechanic.
The plaintiff was a member of First State Superannuation Scheme. MetLife and TAL were the fund's insurers and both declined the TPD claim.
It was agreed that the plaintiff was unlikely to return to work as a police officer however the issue at trial and on appeal was whether he would return to other suitable work.
Duty owed to the plaintiff
The duty imposed by s 13 of the Insurance Contracts Act 1984 (Cth) (in the form it took at the time the MetLife and TAL policies were entered into) imposed obligations of utmost good faith upon the parties to the contract only - that being the insurer and the trustee, FSS.
The court found that FSS held the benefit of MetLife's and TAL's obligations to act in utmost good faith on trust for its members, including the plaintiff, but did not expressly state that that duty was owed to a member.
The court concluded that TAL breached its duty of good faith and fair dealing to the plaintiff but that MetLife did not.
The proper construction of TPD clauses
There were two main differences between the MetLife and TAL TPD definitions:
- In TAL's policy, the date of assessment was 3 months after the date of ceasing work due to injury. In the case of MetLife, it was 6 months; and
- The TAL definition allowed assessment to be deferred where the person's condition was unclear.
The court noted the following as being uncontroversial propositions as to the construction of TPD clauses:
- The clause does not turn upon the fact that the insured person is unlikely ever to undertake employment, but instead is expressed to turn upon the state of mind of the insurer;
- The insurer is required to act reasonably in considering the matter and reaching a state of satisfaction;
- There are limits to what flows from an obligation to act reasonably;
- The words 'proof to the satisfaction of us' reflects an obligation on the part of the insured person to provide evidence to support his or her claim;
- The clause turns on the insurer being satisfied that the insured person is 'unlikely ever' to resume employment and not that they will never be able to resume employment;
- All of the foregoing is subject to the obligations of good faith of the insurer, as well as to act reasonably and to do all that is necessary to enable the other party to have the benefit of the agreement;
- The ETE clause materially narrows the scope of coverage given by the TPD definition, from the perspective of the insured person.
'Unlikely ever to engage'
An issue on appeal was whether 'unlikely' meant a probability of less than 50%. The trial judge held that it did, applying Halloran v Harwood Nominees Pty Ltd2. This construction depended on the headnote of White v The Board of Trustees3. The leading insurance text, Sutton4 criticised this aspect of the Halloran decision as 'obiter, unreasoned and must be considered doubtful'.
The Court of Appeal found that the term 'unlikely ever' meant that 'where there is a real chance that a person may return to relevant work, even though it could not be said that a return to relevant work was more probable than not, the insurer would not be satisfied that the definition applies'. 'Unlikely ever' is, in this context, much stronger than 'less than 50%'.
The Court of Appeal also held 'To make an assessment of TPD, it is not sufficient for the insurer to be satisfied that it is more likely than not that the person will never return to relevant work. On the other hand, if there is merely a remote or speculative possibility that the person will at some time in the future return to relevant work, an insurer will not, acting reasonably and in compliance with its duties, be able to be satisfied that the person is not TPD'5.
A real chance that a person will return to relevant work, even if it is less than 50%, will preclude an insured person being unlikely ever to return to relevant work.
No breach of duty by MetLife
The trial judge found that MetLife's declinature letter erroneously summarised a vocational report and that MetLife failed to give the opinion any, or any proper weight. The Court of Appeal found that the trial judge had erred in the interpretation of the vocational report, had not given weight to 8 jobs that were suggested as being suitable for the plaintiff and had failed to consider that the vocational assessment was qualified with the need for more up to date medical and psychological opinion.
The Court of Appeal found that MetLife had given appropriate weight to the vocational report, which was highly equivocal as to what occupations the plaintiff was suited to.
The plaintiff argued that MetLife failed to accord procedural fairness prior to making its determination. Prior to MetLife making a decision, the plaintiff's solicitors, by correspondence, invited MetLife to 'make a decision immediately'. The court found that this constituted a waiver of the plaintiff's right to procedural fairness.
The plaintiff argued that MetLife breached its duties in not having sufficient regard to the plaintiff's affidavit in making its determination. The Court of Appeal found that it is not unreasonable, or in breach of an obligation of good faith and fair dealing, for an insurer to rely not upon the 'inevitably self-serving statements by the insured' but instead to rely upon medical and psychiatric evidence. The Court of Appeal also held that it was impossible for the plaintiff, without medical qualifications, to give an opinion about whether he would ever recover to the point of being able to work again.
The Court of Appeal held that a mere expression of hope that a person will return to work is insufficient to sustain an opinion that a person is not TPD. However, an opinion in terms that 'in the ordinary course with appropriate treatment a person would return to a relevant form of work', may satisfy that a person is not TPD.
Breach of duty by TAL
The bulk of the criticisms by the trial judge of TAL's declinature letter related to the fact that it made no reference to the medical and psychiatric opinions expressed in 2013 and 2014 (noting that TAL considered July 2012 to be a reasonable date of assessment, following the completing of the elbow arthroscopy). Further, the trial judge considered that TAL's statement that the plaintiff 'was and is' capable of working as a mechanic or as a sales representative did not have regard to the vocational assessment report which determined that those options were not suitable.
The Court of Appeal determined that medical and psychiatric opinions expressed in 2013 and 2014 were relevant to the probability of the plaintiff being able to return to work after July 2012, that these opinions were pertinent to the determination of the plaintiff's condition as at July 2012, and that to exclude them was a breach of TAL's duties.
Process of two-stage enquiry confirmed
TAL argued that for 'own opinion' clauses, a court could not determine disablement and that if the court finds that an the insurer breached its duties, the court was only empowered to order the insurer to reconsider the matter. TAL argued that there is no jurisdiction for the court to rewrite the contract, or for that matter, to perform it for the party that has to form the requisite opinion.
The Court of Appeal rejected this limitation on the courts' jurisdiction as TAL did not propound a sufficiently strong case to overturn previous court decisions which permitted the court to substitute its own opinion. This was due to the practical reality that this approach was settled throughout and beyond Australia. The Court of Appeal held that courts have rewritten parties' contracts for many decades and was not precluded from determining TPD.
Was the plaintiff TPD?
The Court of Appeal found that as at July 2012, the evidence supplied by the plaintiff did not satisfy the court that he was unlikely ever to return to an occupation for which he was qualified by ETE, even if only on a part-time basis.
To read the full decision in TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim, click here.
1 TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim  NSWCA 68
2  NSWSC 913 at 76
3  2 Qd R 659
4 Enright and Merkin, Sutton on Insurance Law (4th ed 2015) at 590
5 Paragraph 89