Abacus Consultants P/L v National Mutual Life of Australia P/L No. DCCIV-01-1758

Abacus Consultants Pty Ltd v National Mutual Life of Australia Pty Ltd
[2003] SADC 135
Civil
Judge David Smith
Introduction

In this action the plaintiff seeks declarations that the defendant is obliged to pay certain benefits pursuant to a contract of insurance on the life of Peter James O’Leary, whom it claims is, and for sometime has been, totally disabled from practising as an accountant by reason of a back injury. The defendant Insurer denies that the plaintiff is entitled to the benefits claimed.
The parties and other principals
Peter James O’Leary (“O’Leary”), though not a party, is a principal in this litigation. He is a qualified accountant. Abacus Consultants Pty Ltd (“Abacus”) is the corporate trustee of P.J. O’Leary Family Trust which was settled in about “the 1980’s” (147). In early 1991 O’Leary set up his own accountancy business. On the 5^thSeptember 1991, he entered into an Income Protection Insurance Policy (“Policy”), with the defendant. He was the “life Insured” under the Policy. On the 5^th April 1995 the benefit of the Policy was assigned to Abacus. The life Insured remained O’Leary. So Abacus is the proper plaintiff in this action.
The Claim and Defence
The plaintiff pleads that the defendant’s conduct and the rejection of the claim as and from the 18^th October 2001 constituted, inter alia:
·Breach of Contract;
·Negligence;
·Breach fiduciary duty;
·Breach of duty of good faith
and breaches of a number of the provisions of the Trade Practices Act, 1974 (Cwlth), Fair Trading Act 1987 (SA), and Insurance Contracts Act, 1984 (Cwlth).
The plaintiff claims, inter alia, a declaration that Peter James O’Leary has been totally disabled since 18^th October 2001 and so is entitled to be paid benefits since then together with the cost of living increases as per the Increasing Claim Benefit Annexure. Further, the plaintiff claims that it has been “short paid” benefits in earlier periods of claim in that the defendant has not paid the Cost of Living Increases and/or Increasing Claim Benefit as provided by the Policy.
The defendant in response contends, inter alia, that as at 18^th October 2001 Peter O’Leary:
·was able to perform the normal duties of his usual occupation; and/or
·was engaged in gainful employment; and/or
·was not under the continuous direction and professional care of a medical practitioner
and so is neither totally nor partially disabled as defined in the Policy. Further, in respect of the claim that previous benefits have been “short paid”, the defendant denies that the plaintiff is entitled to the claimed Cost of Living Increases or increases under the “Increasing Claim Benefit Annexure”.
The Policy – The Material Provisions
The “Professional Income Protection Plan” insurance policy, the subject of this action, could be loosely described as a sickness and accident policy. The benefits available under the Policy are particularised in Clauses A1 to A7. The benefits material to this action are the total disability benefit provided in Clause A1 and the recovery benefit provided in Clause A3.
The material part of Clause A1 provides as follows:
“A1 – Total Disability Benefit
(1)While the Life Insured is suffering Total Disability, We will pay You the Benefit from the expiration of the Qualifying Period until:
(a)     the Life Insured ceased to be Totally Disabled
or(b)     ...................
or(c)     the expiry date referred to in the Schedule
or(d)     ...............
whichever happens first.”
The meaning of some of the terms in Clause A1 are found in the definitions on pages 3 and 4 of the Policy (Exhibit P1) and in the Schedule to the Policy (Exhibit D6). Total Disability is defined as follows:
“Total Disability means that, by reason solely of Injury or Sickness, the Life Insured:
(a)     is unable to perform the normal duties of his usual occupation;
and    (b)     is not engaged in any gainful employment;
and(c)     is under the continuous direction and professional care of a Medical Practitioner.”
It can be seen that total disability within the meaning of the Policy requires proof, firstly, of the Insured’s inability to carry out the normal duties of his usual occupation, secondly, that the Insured person is not engaged in gainful employment and thirdly, that the Insured is under the continuous direction and professional care of a medical practitioner. All three aspects of this definition are in issue in this case.
The benefit payable under Clause A1 is calculated by reference to Clause A1(2)(a) & (b). The Amount of Benefit specified in A1(2)(a), is the benefit specified in the Schedule, namely $1000 per week, but as increased throughout the life of the Policy in accordance with Clause B3 and the Increasing Claim Benefit Annexure to the Policy.
I now turn to the Recovery Benefit or what has been called in this case the Partial Disability Benefit. Clause A2 provides as follows:
“A2 – Recovery Benefit
If, immediately following a period of at least two weeks of Total Disability, the Life Insured engages in any Work but, as a result of the continuation of the disability beyond the Qualifying Period, his weekly earnings (his “Post Total Disability Income”) during that period are less than his Average Weekly Income, We will pay You a percentage of the Benefit ascertained in accordance with the formula:
(A – B)
^_________x      100
A
where A is his Average Weekly Income:
and B is his Post Total Disability Income.
Such payment will be made until:
(a)the expiry of the Accident Benefit Period or the Sickness Benefit Period (as the case may be);
or(b)     the expiry date referred to in the Schedule;
or(c)     the death of the Life Insured,
whichever happens first.”
Counsel for the defendant, Mr Doyle, characterised this provision as a partial disability provision. What is notable is that it applies “immediately following a period of at least two weeks total disability”. “Average Weekly Income” and “work” is specifically defined on pages 3 and 4 of the Policy.
“‘Work’ means being actively engaged in any profession, business or other gainful occupation; “to Work” and “Working” have corresponding meanings.”
The Cost of Living Increases provision is as follows:
“B3 – Cost of Living Increases
(1)In order to protect Your Policy against rises in the cost of living, the Amount of Benefit will be increased on each Policy Anniversary at a rate which We determine based on the Consumer Price Index. Your annual premium will increase appropriately, having regard to:
(a)     the age of the Life Insured at that time;
(b)     the amount of the Benefit increase:
(c)     the premium rates applicable at that time to the table shown in the Schedule;
and(d)     any loadings applicable to the Policy.
(2)You may refuse the increase by notifying Us in writing up to 30 days after the Policy Anniversary.
(3)You should not accept an increase if that would mean that cover would exceed the maximum payable under Clause A1.
(4)An increase in the Amount of Benefit takes effect from the Policy Anniversary and is payable only in respect of Total Disability (not being Recurrent Disability) commencing after that date.
(5)We will stop making cost of living increases five years prior to the expiry date of this Policy.”
It can be seen that Clause B3 provides for cost of living increases to the level of cover during the life of the Policy but not during any period of claim. The owner of the Policy pays for this by way of additional premiums, (see B3(1)), but can opt out (see B3(2)).
Finally, I set out the provisions which provide for increases to claim benefits during the currency of a claim.
“Increasing Claim Benefit Annexure
(I.C.B.)
Subject to the conditions of the Policy and this Annexure, if You are receiving payments under the Policy, WE PROMISE to increase on each Policy Anniversary:
(a)the Amount of Benefit, but not the proportionate benefit payable under Clause A2 of the Policy:
and (b)(for the purposes of Clause A2 of the Policy), the Average Weekly Income;
by the lesser of:
(i)the rate specified in Clause B3;
and (ii)10 percent compound.
Increases in the Benefit will not be paid on or after the ICB Expiry Date.
Definitions
The definitions in the Policy and those below apply to this Annexure.
“ICB”  means Increasing Claim Benefit
“ICB Commencing Date”         1 April 1989
“ICB Expiry Date”                 30 March 2010”
Again, it is clear that during the currency of any claim, the Increasing Claim Benefit Annexure provides the formula for increases to the level of benefits paid. Of course no premiums are payable during the currency of a claim (see Clause C3). During the currency of a claim for Total Disability Benefits under Clause A1 the owner of the Policy is entitled on each Policy anniversary to have the amount of Benefit increased by the lesser of:
(i)     the rate specified in Clause B3 (ie Consumer Price Index);
and (ii)     10 percent compound.
On the other hand during the currency of a claim for Recovery Benefits under Clause A2 the owner of the Policy is entitled on each Policy anniversary to have the amount of Benefit and the Average Weekly Income increased by the lesser of:
(i)     the rate specified in Clause B3 (ie Consumer Price Index)
and (ii)     10 percent compound
Background circumstances
The following narrative constitutes my findings. There is little dispute about these historical events. Essentially the dispute is confined to the extent of O’Leary’s low back disability.
·Early history
O’Leary was born on the 2^nd October 1954 and so is now 48 years old. He is divorced and has three sons who, in part, are dependent upon him. He lives in rented accommodation and is unemployed. His only income is social security benefits.
After leaving school in 1973 he commenced studying architecture but then changed to economics and accounting. He deflected these studies for some years while he worked in the hospitality industry, in particular in restaurants and hotels. In mid-1981 he started working for an accountancy practice called Eastwood Consultants. About this time he resumed his accountancy studies in evening classes. In 1984 he graduated from the University of South Australia with the Degree of Bachelor of Arts in Accounting. In 1985 he married. Eastwood Consultants, as well as providing basic accountancy services, specialised in financial business and estate planning for professionals such as doctors and dentists. As the years proceeded O’Leary built up his own client base. He became a member of the Australian Society of Accountants and obtained his public practice certificate. He worked long hours. In his last financial year at Eastwood’s, which was 30^th June 1990, he earned approximately $200,000 per annum before tax (53).
·Sets up own business 1991 – Peter O’Leary & Associates Pty Ltd – O’Leary insures himself
In December 1990 O’Leary left Eastwood Consultants. The business had been taken over. There was some disruption and client dissatisfaction with the new regime. O’Leary took the opportunity to leave. In the following year he set up an accountancy business on his own account. Some of his Eastwood clients followed him. The business was called Peter O’Leary & Associates and the work was much the same as his did at Eastwood Consultants. He continued to work long hours and his practice began to grow.
On the 5^th September 1991 he took out an Income Protection Insurance Policy, (see Policy Exhibit P1), with the defendant. He was both the beneficiary under the Policy and the life Insured. His medical history had been unremarkable. He was active and fit. He sustained a groin injury in a skiing accident in the United States in 1990 but he soon recovered from it. It did not impact on his work at Eastwood’s.
This new practice began on Greenhill Road then moved to Fullarton Road at Rose Park (52). It started with O’Leary running his own office alone (52). By 1994 when his back problem beset him he had six staff. As was the case at Eastwood Consultants, he was working from ‘7.00 am to 7.00 pm’ (187, 188).
·Back problems end of 1993
At about the end of 1993 O’Leary began experiencing pain in his low back and some numbness in his right buttock. This beset him when he was immobile and was only relieved by him moving about. The pain and discomfort became progressively worse. In early 1994 he consulted a physiotherapist John Barron (58). Physiotherapy gave him no relief. In March 1994 consulted his local general medical practitioner Dr Peter Paschke. In October 1994 he consulted a chiropractor (58). After some brief respite the back pain worsened dramatically. Attending to his practice became extremely difficult. He said that he could not sit for even a modest length of time and worked by kneeling at his desk. Changing posture and using an ergonomic chair made little difference. He frequently went home in the course of the work day and there obtained some relief by lying down.
·First claim – October 1994 – claim period 18^th November 1994 to 18^th May 1995
In October 1994 O’Leary stopped work and put in a claim under the Policy. In his evidence he described his situation in the following terms:
“... It got to the point where the pain was just always there. If I didn’t sit down for any extended period of time it wouldn’t be too bad but if I went in and sat down for even a short period the pain would become quite bad and keep getting worse, the more often I did it the worse it would become, so that was when I actually went off work. I just couldn’t do it ...”
(62)
The claim was accepted and payments of benefits were made by the defendant from 18^th November 1994 until the 18^th May 1995 (346). It was during this time, namely on the 5^th April 1995, that the benefit of the Policy was assigned from O’Leary to Abacus. It is common ground that payments were made in respect of this first period on the basis of total disability (347).
On the 8^th November 1994, on referral from Dr Paschke, O’Leary consulted for the first time Dr David Hall, a spinal surgeon. Investigations, namely CT scans and MRI scans, revealed the disc degeneration at L4/5 Level (see report Exhibit P2). Dr Hall arranged for O’Leary to have a series of steroidal epidural injections over a period of a year. Their purpose, according to Dr Hall, was to reduce inflammation around the nerves and thereby reduce pain (96). They achieved no lasting relief.
O’Leary said he returned to work in about March 1995 but was unable to work fully and effectively. As had previously been the case he was forced to work in a kneeling position. He needed to take frequent breaks and sometimes would lie down on the floor of his office. He was effectively working only half time. Not unexpectedly his income began falling away as clients gradually became less tolerant.
·Second claim – claim period 13^th October 1995 to 17th October 2001
Accordingly, the plaintiff made a second claim for total disability benefits on the 13^th October 1995. the Insurer accepted it immediately on the basis of it being a recurrent disability within the meaning of Clause B1 (see 346, 347; Exhibit D6).
So benefits were paid to the plaintiff from 13^th October 1995 to the 17^th October 2001 when they ceased.
The defendant Insurer accepts that the benefits paid were initially total disability benefits pursuant to Clause A1 (346). Then after a period of time the benefits paid “became” Recovery Benefits pursuant to Clause A2 (358; Exhibit P9).
The Policy Schedule specifies the amount of benefit as $1,000 per week (see Exhibit D6). The amount of benefit is annually increased by the Consumer Price Index (see Clause B3), unless the Insured or owner of the Policy declines. The Insured declined the 1994 increase (see Exhibit D7). It is common ground that as at the time of the first claim in October 1994 the amount of benefit had swelled by reason of Clause B3 to $1,034 per week. Then by the time of the second claim in October 1995 the amount of benefit had risen to $1,081 per week (346, 347, 351, 353, 355), and that was the sum paid to the plaintiff until 17^th October 2001 when payments stopped.
The query which arises here is how the paid benefit could remain at the same figure of $1,081 for six years given the promise of increases in the Increasing Claim Benefit Annexure to the Policy.
This is one of the matters of contention between the parties. I will deal with it later.
I return to the narrative.
In this period O’Leary continued to consult with Dr Hall. O’Leary’s medical advice was that the prospects for recovery “in the medium term” were not good (67). As a result he decided to sell his practice while it was still a going concern (67, 68). Accordingly, he sold the business Peter O’Leary & Associates Pty Ltd in March 1996 (68).
In 1997, at the request of the defendant, O’Leary was examined by Dr Fry. Like Dr Hall, Dr Fry’s initial view was that O’Leary was disabled from “full time” duties implying only a partial inability to attend to his usual work. I will return to the medical evidence as a whole in due course.
In this period, that is 1995 and 2001, O’Leary, without success, had embarked upon a wide range of both traditional and alternative courses of treatment. They included as follows:
·physiotherapy;
·acupuncture;
·painful bursts of glucose injections;
·chiropractic;
·naturopathy;
·diet; and
·witchcraft.
Further, O’Leary had discussed with both Doctors Hall and Fry disc replacement therapy which had been pioneered in the United States of America. Dr Hall told O’Leary, and in his evidence told the Court, that disc replacement therapy was no longer available, for instance at the Royal Adelaide Hospital, because, although it had “been around for a long time “ (95), it was regarded as an experimental procedure. Dr Fry was a little more enthusiastic about it but accepted that it was no longer available as it was considered developmental and had experienced some bureaucratic problems in the United States of America (110). As far as the fusion option was concerned, neither Hall nor Fry would recommend it because there were realistic prospects that it could fail or make O’Leary’s condition worse. Until such time as the pain became unbearable their joint view was that O’Leary should not consider it. Dr Hall told the Court that there was a 30% failure rate and 4% chance of being worse off (101). Dr Fry said that in his experience 1/3 of patients improved 1/3 were unchanged and 1/3 worse off (186).
O’Leary made the decision not to risk it.
·Adverse medical opinion – defendant stops payments of benefits – 17^th October 2001
On the 29^th October 1999 at the request of the defendant O’Leary was examined by the neurosurgeon Mr Harold Schaeffer. He reported:
“It is my opinion that Mr O’Leary is capable of performing his usual duties in a full-time capacity and without restriction.”
(see report 8.11.99 p6 Exhibit D5)
Mr Schaeffer examined O’Leary again on the 20^th September 2001. His view was unchanged (see report 27.09.01 Exhibit D5). Mr Schaeffer confirmed and elaborated upon his view in evidence. The neurosurgeon Mr Brian North examined O’Leary on the 11^th February 2000 again on instructions from the defendant. In short he agreed with Mr Schaeffer. I have before me not only his two reports but also his evidence in which he confirmed and elaborated upon his views.
On the 17^th October 2001 the defendant ceased paying benefits to O’Leary and notified him in writing in the following terms:
“Dear Mr Oleary (sic)
Policy No: D204787402
Claim No: P0155590
We refer to your claim forIncome (sic) Protection benefits and advise we are now in receipt of the report from Dr H Schaeffer you attended on the 20^thSeptember 2001.
The report has indicated that you are no longer totally or partially disabled in accordance with the terms and conditions of your policy. Accordingly, we have now made a final payment of $2255.02 which covers the benefit period of 05/10/01 – 18/10/01 Claim proceeds form part of your assesable (sic) incomeand(sic) should be declared in your next tax ret. There will be no further benefits payable. The waiver of premiums on this policy will only be until the 18^th of October 2001. Premiums will now be charged on this policy from the 19^th October 2001.
Should you have any queries regarding the above, please ontact (sic) Pricillia Chand on 03 92874175.
We wish you well in the future.
Yours sincerely”
(see Exhibit P3)

By this time O’Leary had also been examined by Dr John Durkin – a consultant physician in rehabilitation medicine. Again this consultation was arranged by the defendant. The assessment of Dr Durkin took place on the 6^th June 2001 and he reported to the defendant on the following day the 7^th, inter alia, that O’Leary was “... totally disabled from his normal duties as an accountant ...”. He said when confronted with Dr Schaeffer’s report that Mr Schaeffer had “... not taken into consideration the functional consequences of the injury but looked at it rather from a pathological process” (see report dated 7.06.01 p4 Exhibit P2).
In this period O’Leary, having sold his business, did attempt to make a number of what I will call entrepreneurial ventures work for him. The most promising of these ventures was a nursery business which he established at his home at Aldgate in May of 1995. He had then moved from Norwood to Aldgate and in the garden of the home began the establishment of the nursery business. He explained in evidence that the work suited his back problem. He was able to move about. His three sons helped him. He said “... I thought I could get to a point where I would have a business that would give me a reasonable income ...” (81). The venture failed for lack of cash. O’Leary said that he had to sell the property because he did not have sufficient income to keep it running. He used the equity from the sale of the Aldgate home to purchase a vending machine business. That business commenced in October 2002 and has not been successful. In particular, no income has been derived from the business and O’Leary gave evidence to the effect that he had already taken steps to terminate his association with the New Zealand based organization (84).
As indicated before, as this period of six years proceeded and the Insured embarked upon what I have called entrepreneurial ventures the Insurer effectively downgraded the claim to one for Recovery Benefits pursuant to Clause A2 (see Exhibit P9; 358). The explanation proffered by the defendant’s counsel at trial was that because the Insured engaged in work, that is for instance set up and worked at the nursery business, he took himself out of Clause A1 (Total Disability Benefits) into Clause A2 (Recovery Benefits). He, according to the Insurer, engaged in work or “gainful employment” notwithstanding that he made no profit or even recouped a wage.
I will return to this contention when I come to construe the Policy.
These proceedings were instituted on the 14^th November 2001.
·The medical evidence on both sides
The evidence of Doctors Hall and Fry was that O’Leary, is for all practical purposes, disabled from working as an accountant. They acknowledged that their views were dependent on O’Leary’s subjective complaints. Neither regarded the modest degree of degeneration as overly significant. Further, they did not regard O’Leary’s rather active recreational life as necessarily inconsistent with his claimed level of work disability. Doctor Hall made the obvious point that “back pain is invisible” (110). Dr Fry said that improvement was unlikely (163).
Dr Durkin, whose expertise resides in the assessment of function, was categorically of the view that O’Leary was totally disabled from work as an accountant. He made the point that sitting increased the intradiscal pressure (216). Dr Hall agreed with this proposition (106). Both Doctors Hall and Durkin recommended a full functional capacity test be carried out because there was some level of objectivity and compliance testing involved (see Hall 105; Durkin 216). Ms Trankalis tested O’Leary on the 20^th February 2002. She explained that in such testing there were indeed objective indicators of pain and discomfort, to which she had regard, including heart rate, skin colour, sweating, and complaints of dizziness (120, 121). She denied that she was solely constrained by O’Leary’s subjective responses but contended that her assessment was based on her observations and the clinical signs (133-135). She concluded as follows:
“Mr O’Leary did not demonstrate the current capacity to sit on constant basis, required generally when working as an Accountant, which is Mr O’Leary’s usual occupation and is therefore unable to perform the usual duties of his occupation”.
(see report dated 20.02.02 p8, Exhibit P2; 121)
Like Doctors Hall, Fry and Durkin, Ms Trankalis saw no incompatibility in the fact that O’Leary was able to swim, play tennis and body surf (126).
I turn to the defendant’s medical evidence.
As indicated Dr Schaeffer considered that O’Leary was not disabled at all from working as an accountant. Mr Schaeffer’s examination of O’Leary on the 29^th October 1999 was normal and in his view O’Leary’s freedom of movement and mobility were inconsistent with a person experiencing severe symptoms of low back strain (see report 8.11.99 p4 Exhibit D5). He considered that the bulging of the L4/5 disc on the right side was not of clinical significance but rather was not unexpected in a man of O’Leary’s age. In his view the extent of degeneration seen on the scans was not enough to account for his claimed level of disability (284). He said that O’Leary was fit to work as accountant on a full time basis. Finally, Mr Schaeffer expressed “... some reservations ...” about the claims by Doctors Hall and Durkin that sitting increased intradiscal pressure (280).
Mr North’s view was essentially the same. In his first report, which followed upon his examination of O’Leary on the 11^th February 2000, Mr North was not as critical of O’Leary’s presentation as his colleague Mr Schaeffer. However, he considered that the degeneration evident at the L4/5 level was only mild and concluded that O’Leary was partially disabled from normal duties as an accountant (see report 14.02.00 Exhibit D5). In his second report, and in his evidence, Mr North was of the view that, given regular breaks, O’Leary could function as an accountant (see report 2.09.02 Exhibit D5). He considered that there was “incongruity” between O’Leary’s claimed disabilities and the physical activities in which he engaged, such as, playing tennis and body surfing (302).
Findings of fact - credibility – reliability
It can be seen that the issue is the extent of O’Leary’s low back problem and, in particular, whether the undeniable pathology at L4/5 is as disabling as he claims. So his credibility and reliability is crucial. So too, there is the conflicting medical testimony to be resolved. The defendant’s counsel has not directly contended that O’Leary has been deliberately and untruthfully misrepresenting the extent of his disability, however, the thrust of the defence case is that, contrary to O’Leary’s protestations, he is able to work at his normal accountancy duties.
This case is not unlike Dibbins v Dibbins (1978) 80 LSJS 165. At pages 165 and 166 Bright J said:
“This case is an example of the useful principle that where medical evidence is in conflict the primary consideration may be the credibility of the plaintiff. True, the medical specialists, with their skill and experience, can move parts of the body so as to test the range of involuntary movement. They can also, by means of diagnostic aids, detect the presence or perceive the apparent absence of physical abnormalities which might be the cause of claimed symptoms. They can also, with their knowledge of anatomy, give a valuable opinion as to whether claimed symptoms are consistent with each other or with a suggested physical cause. But ultimately we must come back to the symptoms. Of course, anatomical signs detected by the medical specialists or the absence of such signs may tend to establish that the patient is telling untruths about or is exaggerating her symptoms. But it is the symptoms that are central not the signs. I hope that I am not being unduly idiosyncratic when I say that if reliable independent evidence clearly indicates that the patient is credible, one does not disregard his or her complaints merely because the signs suggest that little or nothing is seriously wrong. Failure to recognize this simple truth has, I should think, led to the death or invalidity of many patients. Medical science has advanced very far but it is still not always capable of producing unqualified and indisputable answers.
Very often there is no reliable independent corroboration of the patient’s account. In such a case, obviously, the medical evidence is of the greatest importance, especially if the medical evidence is all one way. But if the doctors disagree the judge still has to decide, and he may not make it his first concern to assess the relative credibility of the doctors. I think he may first assess the evidence of the patient.
All this is by way of preamble to the reasons for judgment in the present case which is an assessment of damages in which there is almost complete disagreement by the medical specialists, there is a body of non-medical evidence supporting the plaintiff's credibility and the defence strongly attacks the plaintiff as an imposter, or, at best, a great exaggerater.
My approach to this case will therefore be to examine the plaintiff’s evidence, then the evidence of non-medical witnesses as to their observations of her physical condition, then the evidence of medical experts to see if their evidence causes me to vary my conclusions as to her symptoms and then to consider again the medical evidence, insofar as it is consistent with those conclusions in order to determine a prognosis.”
(See also Donjerkovic v Adelaide Steamship Industries Pty Ltd (1980) 24 SASR 347).
With those remarks in mind I turn to my findings of fact.
I accept the credibility and reliability of the evidence of O’Leary. I find that he is unable to work as an accountant. Interviewing clients on his knees or in an upstanding position, coping with the onset of pain and discomfort, stretching and moving about in an attempt to alleviate the onset of pain, having time off to rest, in practical terms constitutes an inability to carry out the normal duties of a practising accountant. In such circumstances the decline of his practice was entirely predictable.
O’Leary’s evidence that he is and was so disabled is supported elsewhere in the evidence. Firstly, there is indisputable or objective pathology, namely the bulge of the disc at L4/5. Secondly, there is support for the disabling extent of the injury in the expert evidence called by the plaintiff. In particular, there is the functional incapacity identified by the occupational therapist, Ms Trankalis, indicated by some objective signs (see Trankalis 121; Hall 105). Thirdly, that he had and still has a seriously disabling back problem, fits in with other acceptable evidence. For example, he has indisputably pursued with vigour a wide range of treatments, some of them painful, to address his disability. They ranged from physiotherapy to outright witchcraft. Further, I accept, based on the income taxation material before me, that he had the capacity to earn many times the amount of his cover, which was approximately $50,000 per annum. It seems to me inconceivable that without any real physical disability he would either deceitfully or even subconsciously resign himself to $50,000 per annum. Also, I note that the defendant’s medical evidence did not categorically preclude a conclusion that O’Leary was disabled. For example, Dr Schaeffer accepted that the difference between his view and those arraigned against him was “... a matter of degree ...” (281, 282). Finally, I note and accept as clearly genuine O’Leary’s attempts to replace his lost earnings by establishing, for instance, the ostensibly more suitable nursery business which failed for want of capital.
As to the medical testimony, I regard the conflict as a matter of emphasis only, but in any event I prefer the combined views of Doctors Hall, Durkin and Fry together with the opinion of the occupational therapist Ms Trankalis to those of Doctors Schaeffer and North.
So I find that since at least 18^th October 2001 and probably since the time of his first claim in October 1994 O’Leary has been unfit to work at his profession of accountancy.
These findings do not necessarily translate into a conclusion that O’Leary is either totally disabled or partially disabled within the meaning of the Policy.
The Construction of the Policy – the principles
First of all this is not a policy which provides benefits for total disability if the Insurer is of the opinion that the Insured is disabled. Accordingly, the principles guiding the exercises of discretion by the Insurer in such cases with their emphasis on “reasonableness” and the “duty to act with utmost good faith” as outlined for instance in Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 77,531 (61‑113); Heitman v Guardian Assurance Co Ltd (1992) 7 ANZ Ins Cas 77,483 (61‑107) and reinforced now by s13 of the Insurance Contracts Act, 1984 (Cwlth), have no direct application in this case.
The plaintiff’s counsel was close to suggesting that in the light of the history of acceptance of previous claims it was a breach of the duty of utmost good faith for the Insurer to change its position and effectively deny the claim. Clearly it cannot be a breach of the duty of utmost good faith for an Insurer to assert a defence which proves to be unsuccessful (see Komorowski v Australian Associated Motor Insurers (1996) 9 ANZ Ins Cas 76,374 (61-303) per Barr AJ).
Rather, this is an insurance contract which the Court can interpret unfettered by the view that the Insurer has plainly come to. In short, this is simply a breach of contract case. The plaintiff bears the onus of proving on the balance of probabilities that the Insured is totally disabled, as defined, and that under the terms of the contract the Insurer is bound to pay the benefits it agreed to pay in the event of such an occurrence.
The ordinary rules of interpretation apply to the construction of this Policy as would be the case with any other commercial contract. The starting place is a literal or liberal construction which as much as possible favours the Insured “so far as the ordinary and natural meaning of the words ... permits this to be done” (see Australian Casualty Co Ltd v Federico (1985-86) 160 CLR 513 per Gibbs CJ at 520, 521). In Allied Mutual Insurance Ltd v Kearneys Services Ltd (1994) 8 ANZ Ins Cas 75,509 (61-229) (HC NZ) at 75,514 McGechan J said:
“The question is the intention of the parties, objectively ascertained. The intention is to be gathered from the wording of the policy. Those words are to be construed, in the first instance, in their ordinary meaning, but in the context of the document as a whole; and the document, in turn is to be construed in the context of surrounding circumstances. The Court looks, where possible, to a liberal construction, which will give effect to otherwise evident intention. Where there is ambiguity, the more reasonable construction is to be preferred. In last resort, where there is ambiguity, the policy will be construed contra proferentem against the party responsible for the ambiguity. In this process, the Court looks for any assistance which may be gained from precedent on those or similar words in similar contexts. However, assistance from precedent must never be allowed to obscure the crucial initial focus: these words, in this document, in this situation.”
With those principles in mind I turn to the construction of this Policy bearing in mind the arguments.
Arguments and Issues
The pleadings and arguments on both sides throw up the following issues:
·has the Insured been totally disabled within the meaning of the Policy (ie Clause A1), and if so over what period?
·has the Insured been only partially disabled within the meaning of the Policy (ie Clause A2), and if so over what period?
·has the plaintiff been correctly credited with the benefit adjustments (ie Clause B3 Cost of Living Increases and Increasing Claim Benefit Annexure)?
Construction of Policy – Resolution of Arguments
The first issue is whether the life Insured here, O’Leary, suffered a total disability, within the meaning of Clause A1. The first of the three requirements is that by reason solely of injury or sickness, the Insured “is unable to perform the normal duties of his usual occupation”.
·Is unable to perform the normal duties of his usual occupation
This Clause needs to be construed bearing in mind the underlying object of the insurance contract which is to provide protection for the Insured person who, by reason of a disability, is unable to pursue his occupation. If the practical reality is that O’Leary cannot operate his practice in an economically viable way then he must be regarded as being “unable to perform the normal duties of his usual occupation”, within paragraph (a) of the Policy definition of “total disability” (see Ibrahim v Greater Pacific Life Insurance Co. Ltd (1996) 9 ANZ Ins Cas 76,664 (61-330) (SC NSW)). In Ibrahim at 76,667 Brownie J said:
“It is no doubt true to say that he can do some parts of the work of his “regular occupation” as a diamond setter, and was able to do so for most if not all of the 53 months in question. However, I do not think that clause 1.15(a) of the policy means that an ability to work for half an hour a day at one of the major parts of his regular occupation, which seems to be about his limit, produces the result that he was not totally disabled, within the meaning of clause 1.15, even reading that clause together with clause 1.16. In my view, a fair reading of clause 1.15 produces the result that, all else being equal, an insured person is not disentitled to Total Disability benefits merely because he or she is able to perform for half an hour a day only (or some other period of time that is not economically sensible) one of the major duties of the insured in his or her regular occupation. The parties should be taken to have been addressing their minds to the question of whether, realistically, the plaintiff was disabled from performing one or more of the major parts of his regular occupation. I do not overlook the circumstance that the plaintiff’s regular work was piece work, but it seems quite artificial to say that the plaintiff was able to perform any of his major duties, just because he could perform them for half an hour a day. In any practical sense, he was unable to perform them. He could dabble with them, or try for a short time to perform them, but that was all. He could not turn that residual capacity for work into money in any real way. No doubt, it is a question of degree, but on the defendants’ submissions, taken to their logical conclusion, an ability to perform one or more of the major parts of his regular occupation for one minute a day would operate to terminate an entitlement to benefits.”
Further, it is clear that full effect must be given to the words “normal” and “usual”. In this case the Insured’s usual business required him for the substance of his work time to sit immobile and amongst other things take instructions from and advise his clients. He plainly has not been able to do that and that continues to be the case. So whilst it is true that he could stand up and move about in the course of a conference or indeed confer with his clients whilst standing at a rostrum, it would be disarming and off-putting quite apart from the inevitable distraction to him as the low back pain gradually took effect and eventually required him to lie down and rest.
Accordingly, drawing upon my earlier findings of fact as to the evidence of O’Leary and as to the medical evidence, I find that O’Leary “is unable to perform the normal duties of his usual occupation” within the meaning of the Policy and that such has been the case from at least the 18^th October 2001. Indeed, on all of the evidence I find that he was so disabled from October 1994 when he initially made a claim under the Policy.
·Is not engaged in any gainful employment

I turn to the second requirement, namely that the Insured “is not engaged in any gainful employment”.
As I have indicated, the Insured O’Leary has pursued a number of fruitless business ventures since the demise of his business. Counsel for the defendant Insurer has argued that, though not profitable, these ventures constituted “gainful employment”. In the light of my ultimate decision about this issue I do not need to make findings about precisely what he was working at and when during this period since the demise of his business. What is common ground is that he has made no profit and more than that no wage from any of his ventures (375, 381, 424 and 425; Exhibit D8).
The defendant contends that “gainful” does not necessarily mean “profitable”. The dictionary definitions of “gainful” and like derivative words are as follows:
“Gainful” productive of gain or profit; profitable, advantageous; leading to pecuniary gain; lucrative, remunerative
“Remunerative” inclined to remunerate; that remunerates or rewards; that brings remuneration; profitable
“Remunerate” to reward (a person); to pay (one) for services rendered or work done
(The Oxford English Dictionary, 2^nd Edition)
The evident intention of this contract, as I said, is to provide a level of recompense for an Insured person who by reason of disability is unable, by dint of his own efforts, to provide for himself as he did before. In my view, attempts at employment will not constitute “gainful employment” within the ordinary meaning of that phrase unless the Insured actually makes a gain, that is, a commercial profit out of the replacement venture.
To support the contention that “gainful employment” does not necessarily mean profitable employment, counsel for the defendant Insurer, Mr Doyle, relied upon the English case of Vandyk v Minister of Pensions and National Insurance (1954) 2 QBD 723 where Slade J, in interpreting the National Insurance Act, 1946 (UK) held that “gainfully occupied in employment” did not necessarily mean making a commercial profit. In my view Vandyk is distinguishable for a multiplicity of reasons. Rather the case of National Mutual Life Association Ltd v Richards (1995) 12 WAR 351 provides more guidance. In that case the Full Court of the Supreme Court of Western Australia had occasion to examine the meaning of the phrase “remunerative occupation”. The plaintiff, Richards, claimed against the insurer pursuant to the “disablement” provisions of a Mortgage Protection insurance policy. The policy defined “disablement” to mean, inter alia, “... total inability to engage in or attend to a remunerative occupation ...” The Insurer ceased paying benefits to Richards. At trial evidence established that Richards had worked in a limited capacity in his wife’s commercially unviable fast-food stall, also for nominal income selling household products and also as a courier driver. None of these ventures were profitable. The trial judge found that “remunerative” meant “profitable”. The Full Court of the Supreme Court of Western Australia agreed dismissing the appeal. The Court held that in the context of a Mortgage Protection insurance policy, the parties must have contemplated that the word “remunerative” was being used in its popular sense, as meaning “profitable”. In particular, it held that Richards was totally unable to engage reliably in any occupation which was “profitable” and therefore was “disabled” within the meaning of the policy and so was entitled to benefits for the relevant period. At 355 and 356 Kennedy, Pidgeon and Walsh JJ said as follows:
“The context in which the term “remunerative” is used in this policy distinguishes the present case from Perrot v Supplementary Benefits Commission. The insurance policy which issued described the insurance as “Mortgage Protection Insurance”. Under it, in the vent of the insured’s disablement, the respondent’s mortgagee, Town and Country WA Building Society, was to be paid for each day that his disablement continued beyond 14 days, the lesser of one thirtieth of the monthly instalment set out in the schedule to the policy and the sum of $50 (but limited as described in condition 16). In this context, it appears to us that, notwithstanding the practical difficulties to which it may give rise, the parties must have contemplated that the word “remunerative” was being used in its popular sense as suggested by Brightman LJ, that is, as meaning “profitable”. This construction is, in any event, supported by the contra proferentem rule – as to which, see generally MacGillivray and Parkington on Insurance Law (8^th ed, 1988), at pp 454-455, Colinvaux, The Law of Insurance (5^th ed. 1984), at pp 37-38 and Sutton, Insurance Law in Australia (2^nd ed, 1991), at pp 534ff. If any occupation in which the respondent was able to work was not profitable, he would no doubt expect to have the appropriate sum paid by the insurer towards the instalments due on his mortgage.”
Accordingly, I am of the view that “gainful employment” within the meaning of the definition means deriving a profit in the sense of income over direct business expenditure in the way discussed in the case of Richards and would also include earning a wage in an employed position.
The income taxation records of the O’Leary interests and the summaries and calculations in Exhibit D8 on their face show that O’Leary has made no money in the time since lodging his first claim. Indeed it is undisputed that such is the case. His claims in 1994 and 1995 were initially accepted as claims for total disability.
So I find that since late 1994 and in particular since 18^th October 2001 O’Leary has not been engaged in any gainful employment within the meaning of that sentence in the Policy.
·Under the continuous direction and professional care of a medical practitioner
I turn to the third requirement, namely that the Insured be “under the continuous direction and professional care of a medical practitioner”.
The contention of the defendant is that for some time and certainly since the 18^thOctober 2001 O’Leary has neither sought nor obtained medical treatment for his low back ailment and so cannot be regard as being “... under the continuous direction and professional care of a medical practitioner ...” within the meaning of that phrase in the Policy.
Before construing that phrase, I turn to the detail of the evidence as to this topic of medical treatment. The narrative which follows is uncontentious and constitutes my findings.
O’Leary’s low back began to cause pain and restriction in 1993 and he first consulted a physiotherapist about it in early 1994. Then in March 1994 he consulted his local general medical practitioner Dr Peter Paschke (58). Dr Paschke did not give evidence but his records were tendered by consent and disclosed that O’Leary consulted him approximately 45 times about his low back from the 29^th March 1994 to the 26^th October 2001 (see Exhibit D2). During that time and since then O’Leary has also consulted his physiotherapist, sister-in-law, Susan O’Leary. Again, Susan O’Leary’s records show that he consulted her regularly from the 30^th March 1994 to the 18^th February 2002 (see Exhibit D4). Again, Susan O’Leary did not give evidence. Also there were 26 consultations with a chiropractor one Dr Perotti between the 13^th March 1994 and the 27^th September 1994 (see Exhibit D3). Dr Perotti did not give evidence.
Dr Paschke was instrumental in O’Leary attending a pain clinic in 1995 or thereabouts (253). Dr Paschke also referred O’Leary to the spinal surgeon, Dr Peter Hall, who saw and treated him on:
·8 November 1994;
·1^st December 1994;
·6^th January 1995;
·7^th March 1995;
·6^th November 1995;
·27^th February 1996; and
·22^nd January 2002.
The final consultation was for the purpose of enabling Dr Hall to provide a report for this litigation. Dr Hall discussed disc replacement with O’Leary but it was not seriously pursued because it is, and was, regarded as an experimental procedure (95). Other measures such as a course of three steroidal epidural injections did not produce any lasting benefits (96). That left the only option that of surgery and in particular a fusion operation. As to the desirability of fusion surgery Dr Hall said the odds were such that informed patients usually refused surgery and attempted to try to manage their symptoms and in this case that was his advice (101). And so surgery was ruled out (112).
The following exchange took place between counsel for the Insurer, Mr Doyle, and Dr Hall.
“Q.I take it from the closing remarks you made in the course of Mr Ward’s examination of you that, currently, Mr O’Leary does not need to be under the continued direction and professional care of a medical practitioner.
A.Of this medical practitioner, being me as a specialist. But I presume he is under the care of his general practitioner. He would need to see me if he was considering surgical intervention, which was discounted at his last review.
Q.Is it your opinion that, really, there is no treatment that can be offered to him at this stage, short of surgery should some –
A.No, there is the general recommendation that he should maintain his general aerobic fitness and his muscle control of his trunk. I would have recommended to him that he walk regularly, swim, bike ride. They are all good exercises for the back. I would have discussed with him pilates exercises for the back, I’m not sure if he has undertaken that. There is no present intention for any treatment by surgery, so that is why I am not seeing him at the present time.
Q.Can you just explain what pilates exercises are.
A.They are not new; they have been around since the early 19900s (sic). They were exercises initially in ballet dancers to stabilise the trunk muscles, either with or without machinery, to stabilise both the abdominal and the deep muscles of the lumbar spine. They are generally supervised by physiotherapists but they can be supervised by anyone.
Q.Going back to the question of ongoing medical treatment or observations, is he continuing to see his general practitioner.
A.If he requires painkilling medication or needs a prescription from his GP generally. But if he is not requiring medication, there is probably no need for review by his general practitioner either. You only need to see the doctor if there is some action in the plan. If the GP cannot offer specific treatment – which I doubt if he could – and he is not requiring medication, then there is probably no reason to see his GP either. It is a matter of living with the symptoms.”
(see transcript p111-113)
Dr Fry saw O’Leary in January 1997 for the defendant. Then in March 1997 he saw O’Leary on referral from Dr Paschke. He finally reviewed O’Leary on the 11^th June 2002 (156). As to the need for ongoing treatment Dr Fry made it clear that there was no active treatment indicated for O’Leary. He said that O’Leary’s condition was not bad enough to warrant taking the risks of fusion surgery. He said generally O’Leary’s future will be the same as his past in terms of pain and discomfort though he did say his condition will worsen (163, 164). Finally, Dr Fry said “... a person has to earn an operation. He has to be bad enough to face those odds. That means that his life is daily intolerable, just plain intolerable” (186).
As to medical treatment in the meantime, Dr Fry said that O’Leary would need to consult his medical advisors only if his circumstances were to change (182).
O’Leary agreed that he had not taken medication “for years” (138). As far as the need for ongoing treatment was concerned he said that Dr Hall’s advice was that there was not much that could be done until such time as “... the pain got that I couldn’t stand it and I wanted to have a fusion ...” (254). He agreed that the medical management plan was for him to return to his GP Dr Peter Paschke for on-referral to Dr Hall if the pain was such that a fusion operation was necessary (254). O’Leary added that there were occasions when he suffered with sciatic pain and if and when that happened he would either “go and see a physio or go and see Dr Paschke ..” (255). Finally, he said that on the advice of the physiotherapist he was carrying out certain stretching exercises on virtually a daily basis to keep his spine supple and mobile (139, 255).
With that evidentiary background in mind I now turn to the contentious portion of the definition of total disability. I set it out in the context of the definition:
“Total disability means that, by reason solely of Injury or Sickness, the Life Insured:
(a).........;
and (b)..........;
and (c)is under the continuous direction and professional care of a Medical Practitioner.”
(the italics are mine)
The precise purpose of the italicised requirement is not immediately obvious. So construing it bearing in mind the purpose it was intended to serve is rather difficult. A number of possible objects are likely. Is the fact of being under the continuous direction and professional care of a medical practitioner some measure of the severity of the disability? Is this type of requirement intended to “guard against fraudulent claims” (see Hunter v Federal Casualty Co of Detroit (191) NYS 474 (1921)), or to ensure that a curable disability is not left untreated and requiring indemnity when but for medical intervention the Insured would be back at work? In the light of my decision about its plain meaning, ascertaining its purpose is not necessary.
The adjective “continuous” which qualifies the nouns “direction and professional care” means “ongoing, uninterrupted, unbroken”. So what is required is that the Insured is under the ongoing or unbroken guidance and management of a medical practitioner. What is notable is that it is not required that there be actual treatment and/or actual attendances by or upon a medical practitioner (eg “under the regular care and attendance of a legally qualified physician” Froelich v Continental Casualty Co (1956) 4 DLR (2d) 62; “care of a qualified physician ... at least once in seven days ...” Barbeau v Merchant’s Casualty Co (1927) 44 Que KB 295).
The “direction and professional care of a medical practitioner” is qualified only by the requirement that it be “continuous”. In my view, the word “continuous” is an appropriate description for a “once only” piece of medical advice which by its nature applies over a period of time. So the diagnosis, prognosis and recommendation as to the timing of surgery of Dr Hall has had an effect which has persisted, that is, it is continuous. Further, such advice would clearly amount to “direction and professional care ...”. I do not consider that “direction and professional care” means or implies that there should be actual treatment or attendances by or upon the medical practitioner.
The evidence establishes that O’Leary has accepted that unless and until pain intensifies then he ought not to undergo the risk of the only course open to him, namely, the fusion surgery. This advice from Dr Hall, and reinforced by that of Dr Fry, is plainly continuous in the sense that it remains the current position. Clearly O’Leary considers himself under the care of Dr Hall through his local general medical practitioner, Dr Peter Paschke (254).
Unlike the clauses in Froelich and Barbeau this provision is broad and general enough to accommodate the clear cases where the disabling condition is clear cut and not amenable to immediate treatment. It embraces the situation where after intensive investigation and treatment passive or conservative management is the only remaining option until further complications set in.
So in my view it is plain that, by reason of his low back condition, O’Leary is, and has at all material times been, under the continuous direction and professional care of if not Dr Paschke and Dr Hall together then Dr Peter Hall.
I do not regard the phrase as ambiguous thereby warranting the application of the contra proferentem rule but if the phrase be regarded as ambiguous I would hasten to the above conclusion even more quickly.
·Alternative construction of medical supervision requirement – implication of term
If I am wrong about the construction of this aspect of the definition, and a proper reading of it required regular medical interventions as contended for by the Insurer, then I would imply into the requirement that the direction and professional care of the medical practitioner be necessary and beneficial for the proper treatment of the Insured’s injury or sickness. The interpretation contended for by the defendant without such an implied term would plainly defeat the real intention of the parties (see Froelich v Continental Casualty Co (supra) per Procter JA (dissenting) at 70-78; Barbeau v Merchant’s Casualty Co (supra); Hunter v Federal Casualty Co of Detroit (supra)).
In Froelich the Saskatchewan Court of Appeal had occasion to consider the meaning of a somewhat similar requirement phrase in an accident policy. I set out hereunder the headnote from the Dominion Law Report of that case.
“Plaintiff was insured under an accident policy indemnifying him in the amount of $100 a month for so long as he was “wholly and continuously disabled by reason of injury from engaging in each and every occupation or employment for wage or profit” and provided he was “under the regular care and attendance of a legally qualified physician”. In an automobile accident the plaintiff suffered a permanent paralytic condition which incapacitated him from all work other than that of a trivial clerical nature. He obtained a sinecure as local postmaster which paid a modest salary but all work was done by assistants which he had to employ out of his salary, he himself being able to do hardly more than write his name. He discontinued medical care because, his condition being permanent, he could gain no benefit therefrom and it was financially ruinous. At the trial he succeeded in his action for indemnity. On appeal by the insurer held, Martin C.J.S., Gordon J.A., Procter J.A. dissenting, that the action must be dismissed. Even if the plaintiff satisfied the condition of being disabled from engaging in occupation or employment, which, semble, he did, he has failed to satisfy the condition of being under regular medical care. The latter proviso is plain and unambiguous and must accordingly be given effect to. The rule that a policy of insurance should be construed against the insurer and in favour of an insured is limited to cases of doubt and ambiguity. Section 268 of the Saskatchewan Insurance Act, R.S.S. 1953, c. 133, which gives a Court power to relieve against forfeiture where equitable to do so was not pleaded or argued at any stage of the proceedings and in the circumstances cannot be considered.
Per Procter J.A. (dissenting): The plaintiff was totally disabled within the meaning of the first condition and the second condition is either unenforceable for vagueness, there being nothing to define what constitutes “regular care and attendance of a physician”, or inapplicable in the circumstances because it can hardly be reasonably construed as compelling the plaintiff to incur medical expenses which would be of no benefit whatsoever and which could easily exceed the amount of the monthly payments under the policy. In any event the Court should exercise its jurisdiction under s. 268 to relieve against the condition and resulting forfeiture on equitable grounds as the literal interpretation of the provision would unfairly and unjustly defeat the real intention of the parties.”
In his dissenting judgment Procter JA at 76 and 77 said:
“No evidence was called on behalf of the defendant and no attempt was made by the defendant to show that regular care and attendance of a legally qualified physician, surgeon or osteopath would have improved the condition of the plaintiff.
Once it is determined that the plaintiff’s accident had resulted in complete and permanent disability which was incurable and that medical attention could not improve his condition as stated by Dr. Thompson, it must be presumed that such medical attendance, if it would have any effect, would increase the liability of the defendant by extending the period of time during which they would be required to make the monthly payments provided by the policy. The shorter the life of the plaintiff the less would be the loss of the defendant under its policy. There would be a different situation if medical evidence had been called to show that the plaintiff’s disability might have been lessened by such treatment.
I do not think that the Court must, under the circumstances disclosed here, so construe the condition as to medical treatment that the defendant could compel the plaintiff to incur the expense of medical treatment which will benefit neither party to the contract, particularly where the expense might easily exceed the amount of the monthly payments under the policy.
The defendant can, if there is any doubt as to the plaintiff’s condition, protect itself from any improper claim on his part under the rights given it by cl. 18 of the policy which provides for proof of his continued disability every 60 days if required by the defendant.
My view of the construction which should properly by placed on this clause of the contract is supported by a reference to Couch’s Cyclopedia of Insurance Law, 1930, vol. 7, s. 1679, where the learned author says: “Again, a provision providing indemnity for no longer period than that during which the insured is ‘under the regular treatment’ of a physician presupposes that some advantageous treatment will be possible, so that, where it is undisputed that no treatment will be of the slightest assistance, the words ‘regular treatment’ are suspended, and none is essential to a recovery of the indemnity provided by the policy.” The authority given for this statement of the law: Hunter v. Federal Cas. Co. (1921), 199 App. Div. (N.Y.) 223, is not available in our library but the digest of the case in the footnote bears out the statement.
To a similar effect is the decision in Barbeau v. Merchant’s Casualty Co. (1927), 44 Que. K.B. 295, quoted by the learned trial Judge.”

In Barbeau the policy in question covered loss of sight. It contained a proviso that no claim could be considered for illness which did not require the care of a qualified physician or surgeon at least once in 7 days and that the indemnity should be payable only for the period during which the Insured was under such care. The plaintiff lost his sight as a result of a double cataract. It was the opinion of the plaintiff’s physician that nothing could be done until the cataract had further developed so as to be operable. Accordingly, there was a period whilst the plaintiff awaited surgery and during that period he was clearly disabled. However, during that time there was no attendance by or upon a medical practitioner once every 7 days. The appeal court held that the plaintiff was entitled to insist on indemnity notwithstanding that the physician did not attend him at least every seven days. The court held that such a literal interpretation would defeat the real intention of the parties.
In the case of Hunter the New York Supreme Court in its appellate division had occasion to deal with the claim on an insurance policy by a plaintiff whose legs were paralysed as a result of an accident. The policy contained a clause to the effect that indemnity should not be paid for more than two years, “nor in excess of the time the insured is under the regular treatment of a legally physician or surgeon”. Hubb J who delivered the judgment of the court said at page 475 as follows:
“It is urged by the appellant that the plaintiff was not under the regular treatment of a physician after 13 weeks from the date of his injury, and that, in any event, the recovery should be limited to that length of time.
The physicians called as witnesses all agreed that there was absolutely no treatment that could have been given to the plaintiff that would have been of the slightest assistance. The provision of the policy quoted was designed as a guard against fraudulent claims, and should be construed in view of the purpose which it was intended to serve. The construction to be given should be liberal, to carry out the spirit and purpose of the contract. The object of the clause being to guard against fraud, where it is manifest that there has been no fraud, it would violate the purpose of the contract to give the clause a literal, narrow construction. It seems to me that the clause should be read under the supposition that the use of the words “regular treatment” presupposes that some treatment will be possible, and where it appears from the undisputed testimony of the physicians called by both the plaintiff and the defendant that no treatment was possible, then the words “regular treatment” are suspended, because the law will not enforce an idle or impossible formality.
To illustrate, if the plaintiff, having in mind such condition of the policy, had instructed his physician to call on him regularly once a week and give him sugar and water, that would have been a literal compliance with the terms of the contract, if the physician said that such was the treatment which he gave him regularly once a week. Therefore, where it appears that it would have been nothing but a sham and an idle ceremony to have had a physician give “regular treatment” once a week, and that there was not treatment that could have been given that would have been of any value, the court should enforce the contract, on the theory that the clause in question assumes that same treatment of value could be given to improve the condition of the injured person. It should be kept in mind that this indemnity of $35 a month is not to reimburse the insured for medical expenses, but that the primary purpose is to indemnify for the injury suffered.”
So it is my view that if “continuous direction and professional care of a medical practitioner ...” does mean regular attendances by or upon a medical practitioner as contended for by counsel for the defendant, it must be the case that to give proper expression to the intent of the parties such a condition or provision must be read as implying that the direction and care be necessary and beneficial for the treatment of the Insured’s illness or injury. In my view the implication of such a term is rather obvious (see BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347; Contract Law in Australia 4^th Edition Carter & Harland paras 620-635). Further, the implication of such a term would give this third requirement some sensible commercial purpose, namely that of ensuring that claimants were being properly treated and therefore not claiming benefits unnecessarily.
So I conclude that the Insured at all material times has been totally disabled within the meaning of the definition in the Policy.
Insurer’s alternative argument – plaintiff entitled to recovery benefits at best
Before setting out my ultimate conclusions, I here deal with the alternative argument of counsel for the defendant, Mr Doyle. The primary argument of course was that the Insured since 18^th October 2001 has not been either totally or partially disabled. In so contending the Insurer relied upon its medical evidence and its contentions as to the proper meaning of the definition of Total Disability. The alternative argument was put as follows:
“... Simply put, the defendant’s case is that if the plaintiff is entitled to any benefit, he is entitled only to the recovery benefit and has been entitled only to the recovery benefit at all material times since October 1995 and accordingly, if he is entitled to any benefit at all material times, the only benefit he is entitled to is $1,081 per week and there were no increases for the reason that I have outlined...”
(379, 380)
In summary the Insurer’s alternative contention is as follows:
·as at the 5^th September 1995 the Policy Anniversary the level of benefit rose as a result of Clause B3 – Cost of Living Increases from $1,034 to $1,081;
·on 13^th October 1995 the Insurer accepted the second claim and accepted that the Insured was totally disabled;
·at some unspecified time subsequent to 13^th October 1995 the Insurer took the view that the Insured was “engaged in work” within the meaning of Clause A2 – Recovery Benefit notwithstanding that he did not work for a wage or at a business which paid him a wage or made a profit;
·so from that time on the Insurer paid the plaintiff Recovery Benefits of $1,081 per week and the amount did not change until the cessation of payments on 17^thOctober 2001;
·the amount of the Recovery Benefit did not change over six years because where the “Post Total Disability Income” is zero, the calculation of the proportionate Benefit will be 100% of the amount of Benefit, namely $1,081. The calculation under Clause A2 is:
(A + CPI) – B (ie 0)
^{___________________}x 100 = 100% of $1,081 = $1,081
(A + CPI)
where A is Insured’s Average Pre-Disability Weekly Income
where B is Insured’s Post Total Disability Weekly Income.
That is why, explained counsel Mr Doyle, the Insurer paid the plaintiff $1,081 per week in the years after September 1995 until the cessation of payments on the 17^th October 1995.
In view of my conclusion that the Insured was Totally Disabled, within the meaning of the Policy, I do not need to deal with this alternative contention but in deference to counsel, Mr Doyle’s earnest argument, I set out my views. Indeed a consideration of this alternative argument supports my view of the proper construction of the meaning of “gainful employment” in the definition of “Total Disability”.
Firstly, if I am wrong about the meaning of one or other or both of the latter two aspects of the definition of Total Disability, namely what is meant by the Insured being:
(b) not engaged in gainful employment; and
(c)under the continuous direction and professional care of a medical practitioner
then I agree that the plaintiff’s entitlements probably are found in Clause A2. Moreover, the benefits would be $1,081 per week. Having said that, I consider that there is a tenable argument which was not explored, that the increases in the Annexure should apply not only to the Average Weekly Income but also to the Amount of Benefit. If so, the Recovery Benefit would be more than $1,081 per week.
I turn to a consideration Clause A2 itself in order to test the cogency of the Insurer’s alternative argument underpinned as it is by a contention that the post disability work need not produce income.
First of all, payment of Recovery Benefits is conditional, inter alia, on the Insured, after two weeks of Total Disability engaging in work and earning less than his pre-disability average weekly income. If that is so, Clause A2 then sets out the formula to strike a percentage which is then applied to the amount of the benefit. The result is a proportion of the benefit which then is paid to the Insured as the Recovery Benefit. The Insurer’s contention is that the post disability weekly income can be nil. In my view it cannot sensibly be nil.
The word “work” in Clause A2 is defined as follows:
““Work” means being actively engaged in any profession, business or other gainful occupation ...”
What does gainful occupation mean? The plain objective and intent betrayed by the language used in Clause A2 is that the Post Total Disability Income be a positive sum of money. The use of such phrases as “... weekly earnings ...” and “Post Total Disability Income” and measuring such against “Average Weekly Income” in order to strike a percentage, plainly intends a positive money sum. The provisions of the Increasing Claims Benefit Annexure also indicate the same. It makes no sense for the Policy to expressly provide for cost of living increases to benefits paid and then to admit of an interpretation in which such adjustments have no effect.
Necessarily I do not accept this alternative argument. Rather, I draw from it that the meaning of “gainful occupation” is an occupation or employment from which a wage or some profit is derived. Indeed, such an interpretation supports my view of the meaning of “gainful employment” in the definition of Total Disability. In this Policy those phrases could not have different meanings.
Conclusion
So marrying my findings with my view of the proper construction of the Policy I conclude that O’Leary has been totally disabled within the meaning of the definition of that in the Policy in that he:
·has been “unable to perform the normal duties of his usual occupation” from about October 1994, to the date of this judgment;
·has not been “engaged in gainful employment” since about October 1994; and
·has been “under the continuous direction and professional care of a medical practitioner” since the outset of the low back pain since about late 1994.
Accordingly, the plaintiff is and was entitled to be paid Total Disability Benefits pursuant to Clause A1 of the Policy from the time of the second claim on 13^th October 1995 until the date of this judgment.
Further, pursuant to the Increasing Claim Benefit Annexure the plaintiff is entitled to have had the amount of Benefit increased on each Policy anniversary by the lesser of:
(i)the rate specified in Clause B3;
and (ii)10 percent compound.
which is agreed to be the rate specified in Clause B3, namely the Consumer Price Index. Accordingly, the amount of Benefit should have increased on 5^th September 1996 and thereafter annually on that day to this judgment day.
Finally, the plaintiff is entitled to reimbursement of any premiums paid by it since cessation of payments on 17^th October 2001 as provided for in Clause C3.
As indicated the plaintiff, by its pleading, has claimed not only in contract but also pursuant to the provisions of the Trade Practices Act, 1974 (Cwlth), Fair Trading Act, 1987 (SA), and the Insurance Contracts Act, 1984 (Cwlth). Further, by paragraph 17 of the Statement of Claim the plaintiff also claimed, inter alia, breaches of both fiduciary duty and the duty of good faith and also in negligence. The focus of attention at trial was the claim in contract though counsel for the plaintiff, Mr Ward, did not forsake the contention that the insurer had breached its duty to act with the utmost good faith. As indicated above, I consider that the insurer’s duty to act towards the plaintiff “with the utmost good faith” has no direct application in this case. With the exception of the good faith arguments neither counsel explored the other remedies pleaded in the Statement of Claim. In my view, the appropriate cause of action is that of contract. I intend to confine the remedies to that cause of action.
Pursuant to s37 of the District Court Act I make the following declarations:
·that the refusal by the defendant to continue to pay benefits to the plaintiff as notified to O’Leary by the letter of the 17^th October 2001 (Exhibit P3) constituted a breach of the contract;
·that the failure by the defendant to pay to the plaintiff the amount of the increase to the claim on the Policy Anniversary of the 5^th September 1996 and on every such anniversary since that time and to the time of this judgment is a breach of the contract;
·that as and from the 18^th October, 2001 to the date of this judgment the plaintiff is entitled to be paid the Total Disability Benefit prescribed by Clause A1 of the Policy of Insurance.;
·that to the extent that it is unpaid from the 5^th September 1996 to the date of this judgment, the plaintiff is entitled to be paid the increasing claim benefit prescribed by the Increasing Claim Benefit Annexure, that is, the plaintiff is entitled to have had increased on each Policy Anniversary the amount of the benefit by the rate specified in Clause B3 (Consumer Price Index);
·that the plaintiff is entitled to interest on the sums calculated to be payable to date pursuant to s57 of the Insurance Contracts Act, 1984 (Cwlth).
Quantum
As to quantum, without more input from the parties, I decline to embark upon the detailed calculations necessary to implement the above declarations. There are a number of calculations required which ought to be capable of agreement. If agreement cannot be reached I will hear the parties as to what I require to enable me to more certainly calculate the monies payable to the plaintiff under the contract.
I will hear the parties as to the question of costs and as to any further orders that might be necessary by reason of fact that I have not assessed or calculated the total of the moneys payable to the plaintiff.

[2003] SADC 135

11 September 2003