When all else fails - who are you going to call?

December 2014

The Federal Court recently considered an application by Challenger Life for relief under section 215.

Summary

The Life Insurance Act 1 allows a life company to pay money in relation to a disputed claim into court. This is a very useful provision where a life insurer is faced with competing claims and the prospects of settlement have been exhausted. The payment into court releases the insurer from any further liability under the policy in relation to the money. The court has a broad discretion to deal with the disputed monies.

Who does this impact?

  • Life insurers

Highlights

  • Simple and cost effective circuit breaker for competing claims under policies that won't settle
  • Concept of policy includes life policies, sinking fund policies, a section 12A or section 12B policy

The Intractable Dispute

The Federal Court recently considered an application by Challenger Life for relief under section 2152.
 

The utility of Section 215

Section 215 is a useful provision to which a life company can turn in the event it has reached the view that it will not be able to obtain a sufficient discharge when paying the proceeds of a policy despite reasonable efforts. For example, a life insurer may be faced with competing claims from potential beneficiaries relating to an estate or third parties claiming an entitlement to the proceeds of a policy.

The application under s215 is quite simple. The initiating application by the life company is filed with a supporting affidavit and documents demonstrating the basis on which Section 215 is enlivened. The payment of the proceeds of a policy into court discharges any further liability under the policy in relation to the money and so brings legal certainty for the insurer.

After this, the role of the insurer is complete and it becomes a matter for the interested parties claiming an entitlement to the proceeds of the policy, to argue their cases. Depending on the complexity of the issues involved, the application by the insurer can be dealt with relatively quickly.

The facts

In this case, Challenger Life, made an application in the Federal Court to pay the proceeds of a guaranteed annuity policy into court where it had exhausted all reasonable efforts to settle disputed claims between beneficiaries.

The deceased had taken out a Challenger guaranteed annuity policy under which he had purported to nominate his estate and an individual beneficiary to share in the proceeds of the annuity in the event of his death. Unfortunately the policyholder died before the end of the term of the annuity and Challenger sought to pay the proceeds of the annuity to the nominated parties. A question arose as to the proper construction of the annuity policy and nomination of beneficiary form and whether the selection made by the deceased was available to him.

Separately, a family member of the deceased brought a family provisioning claim and Challenger became caught in a dispute between the various beneficiaries to the estate such that it could not settle payment under the annuity policy otherwise than by invoking the jurisdiction of the Federal Court under section 215 of the Life Insurance Act.

Findings

In considering the application, the court reviewed whether or not the terms of the policy, product disclosure statement and nomination form, permitted the policy holder to nominate the beneficiary in the manner chosen3. Predictably, each party claiming entitlement to the proceeds of the annuity argued for a different contractual construction to be applied to the policy.

In reviewing the terms of the policy, the Federal Court affirmed the principle that a contract is to be construed objectively and the meaning of the words determined by what a reasonable person in the position of the parties would have understood the words to mean4. It found that the alternatives that were offered as to how a policy holder may nominate a beneficiary under the policy were not exclusive. In recognising the context of the contract: namely a standard form policy document entered into with ordinary members of the public wishing to invest the money in annuities, the Federal Court held that the contract should not be given an overly legalistic, narrow or pedantic construction5.

The election made by the deceased was upheld and the court made orders accordingly including awarding Challenger its costs of the application and making orders that on payment of the proceeds of the annuity into court, Challenger was discharged from all further liability in relation to payment under the policy.

1 Life Insurance Act 1995 (Cth), section 215
2 Challenger Life Company Ltd v The estate of the late Robert John Real [2014] FCA 1325
3 His Honour Jacobson J delivered reasons for judgement on 5 December 2014
4 As established in Toll (FGCT) Pty Ltd the Alphapharm Pty Ltd (2004) 219 CLR 165
5 See paragraphs [26 to 38]



 

Rebecca Whittle

My clients' business interests are front of mind for me every day.

Rebecca Whittle Partner

Rebecca is an expert in commercial litigation and insurance and has 27 years' experience advising a wide range of clients including major Australian general and life insurers and the government sector, both State and Federal. Rebecca is recognised as a leading insurance and government litigation lawyer.

Rebecca's breadth of expertise covers:

  • Defending government agencies from claims in negligence
  • Defending professional indemnity claims including medical negligence
  • Acting in complex insurance litigation
  • Advising general insurers and life insurers on coverage issues including non-disclosure and misrepresentation
  • Advising on insurance product wordings

Rebecca's government sector clients include NSW Health and NSW Police. Her reputation as a highly skilled litigation lawyer is testament to her ability to protect her public sector and financial services clients from public scrutiny through achieving out of court settlements in hundreds of litigation cases.

Rebecca represents a number of Australia's major life insurers. One of her career highlights was success in the Court of Appeal in Manglicmot v The Commonwealth Bank Officers Superannuation Corporation Limited, involving group life insurance and an examination of the duties owed by a trustee of a superannuation fund to its members when entering into a new policy of life insurance.

Rebecca also acts for a number of the firm's significant government, corporate and banking clients on a wide range of commercial litigation which, has resulted in a depth of expertise in mining and construction litigation, defamation, negligence and breach of contract.

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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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