Beverley v Tyndall Life Insurance Co Ltd
[1999] WASCA 198
•11 OCTOBER 1999
BEVERLEY -v- TYNDALL LIFE INSURANCE CO LTD [1999] WASCA 198
| (1999) 21 WAR 327 | |||
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASCA 198 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:8/1999 | 27 JULY 1999 | |
| Coram: | MALCOLM CJ IPP J ANDERSON J | 11/10/99 | |
| 34 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| PDF Version |
| Parties: | JULIE ELAINE BEVERLEY TYNDALL LIFE INSURANCE CO LTD |
Catchwords: | Insurance Risk insurance policy against total and permanent disability Whether respondent rightly rejected the appellant's claim Additional medical reports obtained and relied upon by respondent but not disclosed to appellant Whether medical reports were adverse to the merits of appellant's claim Whether respondent acted unreasonably and unfairly in failing to disclose the reports Meaning of "total and permanent disability" under the contract discussed Appellant's claim upheld on its merits Insurer is obliged to act reasonably and with the utmost good faith in assessing a claim Respondent's failure to disclose reports with material adverse to appellant's claim breached that obligation Appeal allowed |
Legislation: | Insurance Contract Act 1984 s 13 |
Case References: | Avis-Chalmers & Co v Maryland Fidelity & Deposit Co (1916) 114 LT 433 Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818 Banque Financiere de la Cite SA v Westgate Insurance Co Ltd [1991] 2 AC 249 Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 Black King Shipping Corporation v Massie (The Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 621-1175 Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cases 61-175 Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cases 61-113 Heitman v Guardian Assurance Co Ltd & Anor (1992) 7 ANZ Ins Case 61-107 Karger v Paul [1984] VR 161 Londonderry's Settlement [1965] Ch 918 Rapa v Patience, unreported; SCt of NSW; Library No BC 8500888; 4 April 1985 The Captain Panagos DP [1986] Lloyd's Rep 470 The Distillers Company Biochemicals (Australia) Pty Limited v Ajax Insurance Co Ltd (1974) 130 CLR 1 Tonkin v Western Mining Corporation, unreported; FCt SCt of WA; Library No 980201; 20 April 1998 Vidovic v Email Superannuation Board, unreported; SCt of NSW; Library No BC9504297; 3 March 1995 White v Board of Trustees [1997] 2 Qd R 659 WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10 Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; 18 April 1997 Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; Library No 96050094; 18 April 1997 Australian Associated Motor Insurers Ltd v Ellis (1990) 54 SASR 61 Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 Heitman v Guardian Assurance Co Ltd, unreported; SCt of WA; Library No 920024; 12 February 1992 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 Riley v National Mutual Life Association (1986) 4 ANZ Ins Cases 74-061 Tonkin v Western Mining Corporation Ltd, unreported; SCt of WA; Library No BC9702687; 19 June 1997 Tonkin v Western Mining Corporation Ltd, unreported; SCt of WA; Library No 960302; 31 May 1996 White v Board of Trustees, State Public Sector Superannuation Scheme, unreported; SCt of Qld, Library No BC9700397; 21 February 1997 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : BEVERLEY -v- TYNDALL LIFE INSURANCE CO LTD [1999] WASCA 198 CORAM : MALCOLM CJ
- IPP J
ANDERSON J
- Appellant
AND
TYNDALL LIFE INSURANCE CO LTD
Respondent
Catchwords:
Insurance - Risk insurance policy against total and permanent disability - Whether respondent rightly rejected the appellant's claim - Additional medical reports obtained and relied upon by respondent but not disclosed to appellant - Whether medical reports were adverse to the merits of appellant's claim - Whether respondent acted unreasonably and unfairly in failing to disclose the reports - Meaning of "total and permanent disability" under the contract discussed - Appellant's claim upheld on its merits - Insurer is obliged to act reasonably and with the utmost good faith in assessing a claim - Respondent's failure to disclose reports with material adverse to appellant's claim breached that obligation - Appeal allowed
(Page 2)
Legislation:
Insurance Contract Act 1984 s 13
Result:
Appeal allowed
Representation:
Counsel:
Appellant : Mr E M Heenan QC & Ms S P Richardson
Respondent : Mr M J Buss QC & Mr J Lin
Solicitors:
Appellant : Hoffmans
Respondent : Jackson McDonald
Case(s) referred to in judgment(s):
Avis-Chalmers & Co v Maryland Fidelity & Deposit Co (1916) 114 LT 433
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818
Banque Financiere de la Cite SA v Westgate Insurance Co Ltd [1991] 2 AC 249
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665
Black King Shipping Corporation v Massie (The
Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 621-1175
Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cases 61-175
Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cases 61-113
Heitman v Guardian Assurance Co Ltd & Anor (1992) 7 ANZ Ins Case 61-107
Karger v Paul [1984] VR 161
Londonderry's Settlement [1965] Ch 918
Rapa v Patience, unreported; SCt of NSW; Library No BC 8500888; 4 April 1985
The Captain Panagos DP [1986] Lloyd's Rep 470
The Distillers Company Biochemicals (Australia) Pty Limited v Ajax Insurance Co Ltd (1974) 130 CLR 1
Tonkin v Western Mining Corporation, unreported; FCt SCt of WA; Library No 980201; 20 April 1998
(Page 3)
Vidovic v Email Superannuation Board, unreported; SCt of NSW; Library No BC9504297; 3 March 1995
White v Board of Trustees [1997] 2 Qd R 659
WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10
Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; 18 April 1997
Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; Library No 96050094; 18 April 1997
Case(s) also cited:
Australian Associated Motor Insurers Ltd v Ellis (1990) 54 SASR 61
Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1
Heitman v Guardian Assurance Co Ltd, unreported; SCt of WA; Library No 920024; 12 February 1992
Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151
Riley v National Mutual Life Association (1986) 4 ANZ Ins Cases 74-061
Tonkin v Western Mining Corporation Ltd, unreported; SCt of WA; Library No BC9702687; 19 June 1997
Tonkin v Western Mining Corporation Ltd, unreported; SCt of WA; Library No 960302; 31 May 1996
White v Board of Trustees, State Public Sector Superannuation Scheme, unreported; SCt of Qld, Library No BC9700397; 21 February 1997
(Page 4)
1 MALCOLM CJ: In my opinion this appeal should be allowed on the ground that it was unreasonable for the learned Commissioner to conclude that the appellant was not unlikely ever to resume domestic work or to attend to any gainful work as a cook within the terms of the subject policy of insurance. I have reached this conclusion for the reasons to be published by Ipp J. In my view, the medical evidence demonstrated that the appellant was totally and permanently disabled within the meaning of condition 2.9 of the relevant policy. The minority opinion of Dr Silbert that the appellant's condition and symptoms would possibly improve was based upon an assessment of "non-medical" factors and represented a minority view which was at odds with the other evidence.
2 That conclusion is sufficient to dispose of the appeal. Ground 2 of the appeal contended, however, that the respondent insurer acted unfairly and unreasonably in a number of respects in rejecting the appellant's claim. Section 13 of the Insurance Contracts Act 1984 (Cth) provides that:
"A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith."
3 I agree with Ipp J that s 13 required the respondent to act towards the appellant in the assessment and determination of her claim with the utmost good faith: Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; 18 April 1997. A trustee is also under a duty to act in good faith. What that required in relation to the exercise of a discretion was considered in some detail by McGarvie J in Karger v Paul [1984] VR 161 at 164 as follows:
"In this context I consider that the test of acting honestly is the same as the test of acting in good faith: compare: R v Holl (1881) 7 QBD 575 at pp 580-1, per Bramwell LJ. It was argued for the plaintiff that gross negligence may of itself amount to an absence of good faith. I do not agree. Honest blundering and carelessness do not of themselves amount to bad faith: Jones v Gordon [1877] 2 AC 616, at pp628-9, per Lord Blackburn. Again I do not agree with the argument for the plaintiff that there is any conceptual territory which lies between good faith and bad faith. An act which falls short of good faith is done in bad faith.
(Page 5)
- For the plaintiff it was submitted that in this case the Court should examine whether the trustees gave fair and proper consideration to the exercise of the discretion and that the plaintiff should succeed in the action if they did not. In my view, in this case it is open to the Court to examine the evidence to decide whether there has been a failure by the trustees to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. As part of the process of, and solely for the purpose of, ascertaining whether there has been any such failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the information they had and the reasons for, and manner of, their exercising their discretion. However, it is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of the discretion, fell short of what was appropriate and sufficient. Nor is it open to the Court to look at the factual situation established by the evidence, for the independent purpose of impugning the exercise of the discretion on the grounds the trustees were wrong in their appreciation of the facts or made an unwise or unjustified exercise of discretion in the circumstances. The issues which are examinable by the Court are limited to whether there has been a failure to exercise the discretion in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. In short, the Court examines whether the discretion was exercised but does not examine how it was exercised."
4 McGarvie J concluded in that case that the duty of good faith imposed upon a trustee did not require that the trustee observe the rules of natural justice when exercising a discretion. The reasons for this were stated by his Honour at 166 as follows:
"It was submitted for the plaintiff that it was open to the Court to examine and review whether the trustees had given 'fair consideration' to the exercise of their discretion. In particular it was argued that from the terms of the will and the circumstances of the case it was to be implied that Mrs Karger was to be given a fair opportunity of making representations to them before they exercised the discretion. It was put that this was necessary to ensure that the inquiries of the trustees were
(Page 6)
- adequate. I do not consider that the implication is to be made. I see no good reason for importing rules of natural justice into the exercise of discretion by the trustees of the will. Such an implication is not necessary. The trustees of the will did not exercise their power in a type of situation where a right to make representations upon its exercise is normally afforded: cfCharlton v Members of the Teachers Tribunal [1981] VR 831, at pp844-5. In any event the insufficiency of inquiries by the trustee is not a ground on which the exercise of discretion by the trustees can be examined and reviewed. As the expression 'fair consideration' correctly describes the ground on which the trustees' exercise of discretion can be examined and reviewed, only if it is used with the meaning equivalent to 'real and genuine consideration' there is no advantage in using it.
The principle I apply does not imply that there are not standards with which trustees should comply in the process of exercising their discretion. The approach which trustees should adopt in exercising particular discretionary powers has been elaborated in some of the cases, eg Re Hay's Settlement Trusts [1982] 1 WLR 202, at pp208-10, per Megarry V-C; [1981] 3 All ER 786. When trustees disclose their reasons, making those reasons examinable, they are examined to see whether they satisfy the standard of being valid reasons. The principle which I apply is that, apart from cases where the trustees disclose their reasons, the exercise of an absolute and unfettered discretion is examinable only as to good faith, real and genuine consideration and absence of ulterior purpose, and not as to the method and manner of its exercise."
5 The qualification in the final sentence in that passage was shortly expressed by Harman LJ in Londonderry's Settlement [1965] Ch 918 at 929 in terms that, "… if trustees do give reasons, their soundness can be considered by the court".
6 The position of the respondent in the present case differs from the position of a trustee. An insurer to whom a claim is made is called upon to adjudicate on the merits of the claim to determine whether the circumstances are such to give rise to the insurer's own liability to indemnify the insured against a loss. One reason for the requirement that the insurer must act with the utmost good faith is that in the assessment of a claim under a policy the insurer is in a very real sense acting as a judge in the insurer's own cause. As the cases referred to by Ipp J demonstrate,
(Page 7)
- in these circumstances the duty of good faith must extend to a duty to act fairly and reasonably in the assessment and determination of the question whether the insured has made out a claim under the policy which the insurer is bound to indemnify: cfThe Distillers Company Biochemicals (Australia) Pty Limited v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 29-32 per Stephen J. The circumstances in this case were such that, in my opinion, the insurer was bound to disclose the contents of the medical opinions it had obtained and, in particular, those which had been given by doctors to whom copies of the opinions obtained by the appellant had been provided. In Banque Financiere de la Cite SA v Westgate Insurance Co Ltd [1991] 2 AC 249 at 268 it was common ground that an insured and insurer owed each other an obligation of the utmost good faith. Lord Bridge at 268 approved of the following passage in the judgment of Slade LJ in delivering the judgment of the Court of Appeal in Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 at 772:
"In adapting the well established principles relating to the duty of disclosure falling upon the insured to the obverse case of the insurer himself, due account must be taken of the rather different reasons for which the insured and the insurer require the protection of full disclosure. In our judgment, the duty falling upon the insurer must at least extend to disclosing all facts known to him which are material either to the nature of the risk sought to be covered or the recoverability of a claim under the policy which a prudent insured would take into account in deciding whether or not to place the risk for which he seeks cover with that insurer."
(Page 8)
- "The duty to make full disclosure continues to apply throughout the negotiations for the contract, but it comes to an end when the contract is concluded; therefore, material facts which come to the proposer's knowledge subsequently need not be disclosed."
8 This proposition is repeated in MacGillivray on Insurance Law (1997) at par 17-19 p397.
9 In Avis-Chalmers & Co v Maryland Fidelity & Deposit Co (1916) 114 LT 433 it was held by the House of Lords that full disclosure must be made of all material facts and matters which have occurred up to the time at which there has been a concluded contract. The recognition of a material duty of disclosure in relation to all matters relevant to the entitlement of an insured to recover under the policy would be an obvious extension of the duty of good faith. There seems to be a question whether this is what Lord Bridge intended. In MacGillivray on Insurance Law par 17-23 at 399 the learned author rejected suggestions in Black King Shipping Corporation v Massie (The "Litsion Pride") [1985] 1 Lloyd's Rep 437 at 511-513 and The Captain Panagos DP [1986] Lloyd's Rep 470 at 511-512 that there was an implied term requiring disclosure of all facts relevant to the decision of an insurer whether to meet a claim. It was submitted that these dicta cannot stand with the analysis of the duty of disclosure and the remedies for breach in the judgments of the Court of Appeal in Banque Keyser Ullmann SA, supra, at 777-781 per Slade LJ. In that passage it was confirmed that the mutual duty of disclosure did not survive the conclusion of the contract, although it was recognised that it would arise on every renewal of the contract of insurance. MacGillivray, supra, at pars 19-59 and 19-60 says that Black King Shipping Corporation v Massie was wrongly decided insofar as it held that there the duty of utmost good faith on the insured was based on an implied term in the contract, which required the insured to refrain from "culpable" misrepresentation when making a claim under the policy. In Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818 at 888, May LJ, delivering the judgment of the Court of Appeal, did not question the decision in Black King Shipping Corporation v Massie regarding the continuing duty of good faith. His Lordship said:
"Assuming that the obligation can continue, we see no reason why the source in law of the obligation, or the remedy for its breach, should be different after the contract is made from what it is at the pre-contract stage. We would, therefore, hold that, if
(Page 9)
- the obligation of utmost good faith could be said to have arisen, either in the contract of insurance as a separate obligation owed to the bank as assignee, or in the contract contained in the letter of undertaking, the bank could not establish a claim to damages in respect of any breach of it."
10 MacGillivray at par 19-59 described the consequences of a continuing obligation of non-disclosure as "draconian" and submitted that:
"… the requirements of good faith do not impose any duty upon the assured other than to be honest in presenting the claim and that no authority presently imposes a specific duty of disclosure when making a claim."
11 In my opinion, Lord Bridge did not intend to suggest any continuing duty of disclosure when in Banque Financiere, supra, he approved the relevant passage in the judgment of Slade LJ in Banque Keyser Ullmann, supra.
12 It follows from all this that any duty of the respondent to disclose to the insured any medical reports obtained by it in connection with its consideration of the appellant's claim cannot be based on any mutual duty of disclosure as such. The duty must be an aspect of the mutual obligations of good faith. This requires the implication of a term in the contract of insurance to the effect that the mutual obligation of good faith required that the appellant be given an opportunity to respond to any adverse medical reports obtained by the respondent in the context of the consideration by the respondent of the appellant's claim under the policy, which was itself supported by medical reports. Recognition that the duty of good faith required the respondent as insurer to act fairly and reasonably in the consideration of the appellant's claim would seem to require both disclosure of the medical reports obtained by the insurer and an opportunity being given to the appellant to answer them, as suggested by Hodgson J in Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 621-1175 at 78,000-78,001; and by Bryson J in Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; 18 April 1997.
13 In the present case the medical opinions obtained by the respondent were clearly matters which were material to the recoverability of the appellant's claim under the policy. In my view, for these reasons and the reasons to be published by Ipp J there was a duty upon the respondent to disclose the contents of the opinions to the appellant. In my opinion it follows from this conclusion that the respondent's duty to act fairly and
(Page 10)
- reasonably in the consideration of the appellant's claim in the discharge of its general duty required the respondent to disclose the existence of the opinions it had obtained to the appellant and give her an opportunity to comment or make representations about them before making a decision whether or not to accept liability under the policy.
14 As Ipp J points out in his reasons for judgment the imposition of this duty on an insurer is consistent with the duty imposed upon a person who, by contract is required to carry out a quasi-judicial function: that person must "act honestly, bona fide, and reasonably": see WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10 at [46] per Ipp J, with whom Kennedy and White JJ agreed.
15 I agree with Ipp J that it would be prejudicial to an insured if the insurer was not required to disclose the adverse medical reports on which it relied to reject the claim only after it had decided to reject the claim. This would be unfair to the insured because it would deny him or her the opportunity to answer the medical reports.
16 It follows that if the respondent was entitled to rely on the medical reports of Dr Salmon and Dr Silbert to reject the appellant's claim, it was under a duty to disclose them to the appellant and provide her an opportunity to answer them before making a decision on the claim under the policy.
IPP J:
The claim under the policy and the issues at trial and on appeal
17 The appellant was insured by the respondent under a "risk insurance policy" against "total and permanent disability". On 17 January 1995, when she was 32 years old, she slipped and fell while in her home. The next day she experienced severe pain across the lumbar region and down the posterior aspect of both legs to the ankles. This was accompanied by leg weakness. A large L4/5 disc protrusion was discovered and in February 1995 Mr Vaughan, a neurosurgeon, undertook a laminectomy procedure. This involved removal of a massively sequestered disc and appropriate nerve root decompression. After the operation the leg pain reduced, as did the back pain (albeit to a lesser extent), and there was considerable neurological improvement. Soon after the appellant's discharge from hospital, however, the improvement was reversed. She stumbled while taking her dog for a walk and this produced a flare up of back and leg pain from which the appellant has suffered ever since.
(Page 11)
18 The appellant contended that in consequence of her accident on 17 January 1995 she was totally and permanently disabled within the meaning of the policy. In April 1996 she made a claim on this basis under the policy. Thereafter, she supported her claim by reports from several medical practitioners who had treated her. The respondent, however, by letter dated 9 July 1998, rejected her claim. That letter recorded:
"We are of the view … that, having regard to the evidence, you have not provided proof to our satisfaction that you are incapacitated to such an extent as to render you unlikely to ever resume work or attend to any gainful profession or occupation for which you are suited by reason of education, training or experience. Accordingly we do not consider you are entitled to payment of the total and permanent disablement benefit."
19 The appellant contended that this decision was a breach of the policy by the respondent and she initiated proceedings against it in the District Court. In March 1998, however, before the trial commenced, the respondent agreed to reconsider the appellant's claim in the light of further medical reports that she had obtained as well as reports from other medical practitioners whose advice the respondent intended to seek. In this regard condition 7.7 of the policy provided that:
"Where a condition is subject to diagnosis by a medical practitioner, we may require the diagnosis to be confirmed by an appropriate specialist medical practitioner of our choice."
- It was contemplated that the respondent, relying on condition 7.7, would obtain appropriate medical advice itself.
20 The respondent proceeded to receive additional reports from two doctors it had instructed (Dr Salmon, a specialist in pain management, and Dr Silbert, a neurologist), and after re-considering the matter, it rejected the appellant's claim again. The appellant then pursued the legal proceedings she had previously commenced. The trial took place before the learned Commissioner and was based solely on documentary evidence, consisting of the medical reports that the respondent had taken into account and certain correspondence. His Honour dismissed the appellant's claim and she now appeals against this decision.
21 In describing the issues that were before the learned Commissioner, it is necessary to refer to a certain agreement that was arrived at, shortly before the trial commenced, between the solicitors acting for the respective parties. The terms of the agreement were set out in a facsimile
(Page 12)
- transmission dated 3 November 1998 from the respondent's solicitor to the appellant's solicitor. The facsimile records that "it was agreed that if the Court finds that the [respondent] acted unreasonably in rejecting the [appellant's] claim then the [appellant] is entitled to judgment for the money value of the policy". At the time this agreement was entered into the appellant's claim as pleaded was based on the assertion that the respondent had acted unreasonably in rejecting her claim, having regard to the medical reports that were before it when it made its decision. Later, the appellant amended her statement of claim by alleging that the respondent had failed to act fairly and reasonably in regard to certain procedural matters relating to the determination of her claim, but this amendment was effected after the making of the agreement.
22 In opening the appellant's case at trial, counsel for the appellant stated:
"If you were to find that the insurer is in some manner in breach of its duties of reasonableness or fairness, then it's agreed by the parties that judgment would be entered for the plaintiff in the present value of the sum of the benefit."
- Counsel for the respondent interrupted and said:
"Really what the agreement is that if the plaintiff wins, you give her a money sum rather than, as some of the authorities have done, send it back to the defendant to be reconsidered."
The appellant relied on this exchange and the terms of the facsimile of 3 November 1998 to argue that the parties had agreed that, if the court found for the appellant irrespective of whether the finding was based on unreasonableness in regard to the merits of the claim or unreasonableness in regard to procedural matters, the appellant would be entitled to the money value of the policy.
23 I am not persuaded by this submission. The agreement between the parties (as recorded by the facsimile of 3 November 1998) must be construed by reference to the state of the pleadings when it was made. According to the pleadings at that time, procedural unfairness on the part of the respondent was not an issue. Accordingly, in my opinion, the agreement must be construed to mean that the appellant would be entitled to the money value of the policy only if the court decided that the respondent acted unreasonably in rejecting the merits of the appellant's claim, having regard to the medical reports that were then before it. In my view, the exchange between counsel during the course of opening was not
(Page 13)
- intended to lead to any new agreement; counsel were merely making submissions concerning the effect of the agreement reflected in the facsimile of 3 November 1998.
24 At trial, the parties agreed that the money value of the policy at the relevant time was $142,882. Thus, on the basis of the agreement of 3 November 1998, the appellant would be entitled to this sum should she establish that the respondent acted unreasonably in rejecting her claim on the merits. Should she succeed only in showing that the respondent acted unreasonably in regard to procedural matters, the relief to which she would then be entitled would be a matter for the court, there being no relevant agreement between the parties.
25 The learned Commissioner rejected the appellant's contentions both as to the merits of her claim and as to those procedural matters in regard to which she asserted that the respondent had acted unreasonably and unfairly. The grounds of appeal are directed at various aspects of the learned Commissioner's decision in regard to both the merits and the procedural aspects. In the light of the conclusion to which I have come I propose only to address two grounds of appeal. The first concerns the merits of the claim and asserts, in effect, that the learned Commissioner wrongly held that the respondent's rejection of the appellant's claim was not unreasonable. The second asserts, in effect, that the respondent acted unreasonably and unfairly in failing to disclose to the appellant the two medical reports, which it obtained itself. I turn firstly to the ground of appeal relating to the merits of the claim.
The meaning of "total and permanent disability"
26 At the outset it is necessary to determine what is meant by "total and permanent disability" under the policy. There are three "conditions" of the policy, which were said to be capable of bearing on this, and I shall set out the wording of each.
27 Condition 2.38 provides:
"TOTAL DISABILITY AND TOTALLY DISABLED … is when solely because of sickness or injury:
• You are not capable of doing the important duties of your regular occupation; and
• You are not working in any gainful occupation and
(Page 14)
- • You are following the advice of a medical practitioner …
When you are unemployed …, this definition is varied in line with condition 3A.18.
- Condition 3A.18 provides:
28 "DISABILITY WHILST UNEMPLOYED
If you have been … unemployed for 12 months or more immediately before becoming totally disabled, you will only be considered to be totally disabled if, solely because of sickness or injury:
• You are unable to perform any occupation for which you are reasonably suited by education, training or experience; and
• You are not working in any gainful occupation; and
• You are following the advice of a medical practitioner."
29 The foregoing provisions explain what is meant under the policy by "total disability". The state of being "permanently" as well as "totally" disabled is dealt with by condition 2.39. This provides:
"2.39 TOTAL AND PERMANENT DISABILITY, TOTALLY AND PERMANENTLY DISABLED
… means:
You suffer the loss of:
…
OR
• You have been absent from employment through sickness or injury for six consecutive months and have provided proof to our satisfaction that you are incapacitated to such an extent as to render you unlikely to ever resume work or attend to any gainful profession or occupation for which you are suited by reason of education, training or experience.
(Page 15)
- If you are wholly engaged in full-time unpaid domestic duties when you suffer the sickness or injury causing total and permanent disability then unpaid domestic duties will be included for the purposes of assessing the above definition as if it were one of the occupations for which you are suited by education, training or experience."
30 At the relevant time the appellant was not employed in any gainful occupation but was wholly engaged in full-time unpaid domestic duties. She was qualified to work as a cook and had been employed as a cook some years before the accident and, indeed, shortly prior to the accident had applied for and obtained a position as a cook. She had, however, not taken up that position at the time she was injured.
31 It follows that, ignoring matters which were common cause, for the appellant to establish that she was totally disabled whilst unemployed (within the meaning of condition 2.38 read with condition 3A.18), she was required to show that, because of injury, she was unable to perform any occupation for which she was reasonably suited by education, training or experience. The only occupation for which the appellant was so reasonably suited was that of a cook (or, arguably, a person "wholly engaged in full-time domestic duties"). It seems to me that, having regard to the terms of condition 2.38, a person will be regarded as being unable to perform any occupation for which she is reasonably suited if she is "not capable of doing the important duties" of that occupation. It does not appear to have been disputed that the appellant was totally disabled whilst unemployed, within the meaning of condition 2.38 read with condition 3A.18. The policy confers certain benefits on a person who is totally disabled. Greater benefits are payable to a person who is totally and permanently disabled. The fundamental question on which the trial proceeded (and with which this Court is concerned) was whether the appellant was totally and permanently disabled within condition 2.39.
32 I shall leave aside those elements of the definition of total and permanent disability which were not in dispute. On this basis, the appellant was entitled to the benefits payable for total and permanent disability upon her providing proof to the respondent's satisfaction that she was "unlikely to ever resume work" or attend to "full-time unpaid domestic duties". Again, it seems to me, that in determining this issue, the critical question for the respondent was whether the appellant was unlikely ever to be capable of doing the important duties involved in her "work" or in carrying out full-time domestic duties. As to the meaning of "unlikely" in this context, I would, with respect, adopt the conclusion
(Page 16)
- arrived at by White J in White v Board of Trustees [1997] 2 Qd R 659 (at 673) when construing a not dissimilar provision. Her Honour applied the ordinary meaning of the term which she considered to be "no real chance or even improbable".
The insurer's duties in exercising its discretion
33 The insurer's task in making such a decision was discussed by McLelland J in Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cases 61-113 at 77, 536. His Honour stated:
"[I]n the field of insurance, it is well established that where under a contract of insurance an element of the insurer's liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining that matter…"
- McLelland J noted (at 77, 536) that the insurer "was under a duty of good faith and fair dealing which required it to have due regard to the interests of the claimant: see Distillers Co Biochemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 29-31)." As the policy in question in Edwards v Hunter Valley Co-op Dairy Co Ltd was issued prior to the commencement of the Insurance Contract Act 1984, his Honour's statement of the duties of the insurer did not have regard to that Act.
34 Section 13 of the Insurance Contract Act provides:
"A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith."
35 In my view, s 13 required the respondent to act towards the appellant, in making the decision required of it in terms of condition 2.39, with the utmost good faith: see Wyllie v National Mutual Life Association Ltd, unreported; SCt of NSW; Library No 96050094; 18 April 1997. In the latter case Hunter J held that the insurer (pursuant to a policy akin to that presently in issue) was under a duty to act with the utmost good faith in the assessment of the plaintiff's claim and was under an implied obligation to the plaintiff, in forming an opinion as to the plaintiff's disability, to act fairly, in good faith and reasonably, in considering and determining that matter, having due regard for the interests of the plaintiff (see also Chammas v Harwood Nominees Pty Ltd
(Page 17)
- (1993) 7 ANZ Ins Cases 61-175 per Hodgson J). This means, at least, that the insurer is required to exercise its discretion upon "real and genuine consideration" and on sound reasons: Rapa v Patience, unreported; SCt of NSW; Library No BC 8500888; 4 April 1985 per McLelland J, referred to in Chammas v Harwood Nominees Pty Ltd at 77,999 (see also Vidovic v Email Superannuation Board, unreported; SCt of NSW; Library No BC9504297; 3 March 1995 per Bryson J).
36 The decision to be made by the insurer is essentially in the nature of a discretionary judgment. This has consequences for the basis on which such a decision may be challenged, as McLelland J explained in Edwards v The Hunter Valley Co-op Dairy Co Ltd (at 77,536):
"To say that an insurer must act reasonably informing or declining to form an opinion is not to say that a court can substitute its own view for that of the insurer. As North J pointed out in Doyle v City of Glasgow Life Insurance Co (1884) 53 LJ Ch 527 at 529, 'reasonable persons may reasonably take different views'. Unless the view taken by the insurer can be shown to have been unreasonable on the material than before the insurer, the decision of the insurer cannot be successfully attacked on this ground."
37 The issues raised by the appellant, in challenging the reasonableness of the respondent's decision that she was not unlikely ever to resume work or attend to full-time domestic duties, fall to be considered in accordance with the above principles.
The medical reports submitted by the appellant to the respondent
38 The appellant's initial claim (made in April 1996) was supported by the report of Mr Vaughan dated 6 June 1996, a report by Dr Graziotti, a specialist in pain management and anaesthetics, a report by Dr Garton-Smith, the appellant's general practitioner, and reports by a radiologist. These reports revealed that the accident had caused the following condition as described by a radiologist who had performed a myelogram and various CT scans:
"Large disc protrusion at the L4-5 level causing marked compression of the thecal sac with extruded disc extending both above and below the level of the disc space and up into the right L4-5 outlet foramen. This accounts for amputation of the exiting right L4 nerve root on the myelogram."
(Page 18)
39 Dr Garton-Smith completed a claim form in which she expressed the opinion that the appellant was "likely permanently disabled (sic)". She stated that the appellant would be unable to return to work as a cook and would not be able to carry out important aspects of domestic duties such as to lift, or bend, to vacuum or to hang washing.
40 The report by Dr Graziotti did not take the matter further than the opinion expressed by Mr Vaughan in a report dated 6 June 1996. In that report Mr Vaughan stated that he had first seen the appellant in February 1995, after her fall. He proceeded immediately to surgery "and a massive sequested (sic) disc was removed with adequate root decompression achieved and with significant improvement then in pain for Mrs Beverley". According to Mr Vaughan, the appellant's improvement was reversed by her stumble when walking her dog. This, he described as "a twisting incident with recurrence of some back and leg pain". It was not in dispute that this further incident did not give rise to a supervening cause. Mr Vaughan concluded his report by stating:
"It would appear on the basis of her pain complaint that she has been incapacitated for work to such an extent as to render her unlikely in the foreseeable future to resume work but I can't say that will always be the position, but certainly in the foreseeable future it would be.
At this time there are multifactors (sic) involved in the pain state and it is on that basis that I cannot make a firm prediction of the future but would confirm in summary that Mrs Beverley had a massive disc sequestration, had adequate neurological recovery from the surgery for that condition but still has a painstate (sic) which is crippling and disabling her."
41 Relevantly therefore, as at 6 June 1996, while Mr Vaughan was of the view that the appellant was unlikely to be able to resume work in the foreseeable future, he left open the question whether that would "always be the position". Significantly, the difficulty in making a prognosis was the "multifactors (sic) involved in the painstate (sic)", that is, psychological factors. He did not specify the nature of those factors.
42 On 2 September 1996 the appellant's solicitors sent a copy of condition 2.38 of the policy to Mr Vaughan and sought his views again. By a report dated 24 September 1996 Mr Vaughan confirmed the injuries and physical changes which he had noted previously and stated:
(Page 19)
- "It seems that all forms of management have not given relief for [the appellant] and she is left with a pain experienced in the lower back which I believe at the present is causing her very significant disablement and it would seem prevents her from returning to work generally in any capacity and particularly as a cleaner.
At the present time the prognosis would seem poor because of the effect of the painstate (sic) on her general morale and the need for medication and the associated anxiety and depression which the whole state has created. The latter factors are significant in her painstate (sic)."
43 In this report Mr Vaughan stated that the appellant's "very significant disablement … prevents her from returning to work generally in any capacity and particularly as a cleaner". It is not without relevance that he formed this opinion after he had been given a copy of condition 2.38 of the policy. In my view Mr Vaughan is to be understood as expressing the opinion that the appellant was so disabled that she would permanently be prevented from carrying out important duties of a domestic kind.
44 On 26 February 1998 Mr Vaughan provided a further report. He stated therein:
"[The appellant] is in a precarious state emotionally and in health and I believe that to be a permanent position and one that indeed concerns because of the hopelessness in which she feels herself.
On my review I don't see this woman as employable and has a permanent incapacity for work. I believe then that she has a permanent disablement through the effect of the original fall, leading to a massive lumbar canal implosion by discal extrusion and whilst the response from surgery was excellent there was later a further fall and injury with aggravation of inflammation and degeneration across the lower lumbar levels."
45 By this report Mr Vaughan confirmed his opinion that the appellant's physical and emotional condition was such that she was permanently disabled in the sense of having "a permanent incapacity for work".
(Page 20)
The effect of the appellant's medical evidence
46 The learned Commissioner considered that it was apparent from the appellant's medical reports that, while the appellant suffered from depression and anxiety since her injury, "on the evidence these symptoms have not been adequately investigated". He said that, while Mr Vaughan and Dr Garton-Smith were "all capable of diagnosing depression and anxiety in a general sense", he was of the opinion that "none of them are professionally qualified to diagnose any psychiatric disorder or conduct a psychiatric or psychological assessment". He was of the view that:
"To give proper weight to Mr Vaughan's prognosis it was necessary to be able to consider reliable evidence on the [appellant's] emotional state. [The appellant] did not provide the [respondent] with any such evidence at all".
47 With respect to his Honour, I do not agree with these conclusions and would make a number of observations in this connection.
48 At no time did the respondent suggest to the appellant that Mr Vaughan and Dr Garton-Smith could not give "reliable evidence" on the appellant's emotional state. At the trial, the reports of Mr Vaughan and Dr Garton-Smith, containing their opinions as to the psychological condition of the appellant, were admitted into evidence without objection. In fact, they were not cross-examined and their testimony was not thereby challenged. In the circumstances, their opinions as to the psychological consequence of the appellant's injuries stand. What weight is to be attached to them is a matter for argument (and due regard would have to be had to their qualifications, their field of expertise and the fact that they were not challenged), but - in the circumstances - I am unable to accept that they were not professionally qualified to express those opinions, or that their evidence on these matters was not "reliable".
49 Further, Mr Vaughan made it plain that the psychological factors that were affecting the appellant stemmed directly from the effects of her injuries. In my opinion, significant weight has to be given to the opinion of an experienced neurosurgeon as to the psychological consequences of pain caused by injuries to patients treated and operated on by him. The inference can fairly be drawn that such consequences fall within his field of professional experience and knowledge.
50 It is to be emphasised that, according to Mr Vaughan, the appellant's pain was caused by her injuries, and that pain, in turn, affected her morale, which was also affected by the "need for medication". The "whole state",
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- thereby brought about, caused depression. This combination of factors led Mr Vaughan to conclude that the appellant would not return to work "in any capacity". Essentially this was a "vicious circle mechanism", to adopt the phrase later used by Dr Salmon, who attributed the same causative effect and, in essence, the same prognosis, to these factors. There is nothing particularly unusual in the sequelae described, and in my opinion the conclusion that "[the appellant's] symptoms have not been adequately investigated" was not justified.
51 In my opinion, taken as a whole, the medical reports submitted by the appellant to the respondent (without reference to the reports of Drs Salmon and Silbert) lead inevitably to a conclusion that the appellant was "unlikely to ever resume work" or be engaged in full-time unpaid domestic duties.
The report of Dr Salmon
52 In March 1998, as I have mentioned, the respondent obtained reports from Dr Salmon and Dr Silbert, two specialist medical practitioners retained by it. These reports are of particular importance, as it seems that the respondent was materially influenced by them and the learned Commissioner was of the view that they constituted sound reasons to reject the appellant's claim.
53 I shall refer firstly to the report from Dr Salmon, a specialist in pain management, which is dated 14 May 1998. Dr Salmon described the pain suffered by the appellant in the following terms :
"[The pain is a] continuous "twisting" type pain across the lumbar region and down the posterior aspect of both legs to the heels, the symptoms are more pronounced on the right side. Her pain is aggravated by any activity and by sustained sitting postures. Her symptoms have increased over time and she obtains little pain reduction lying down and her sleep is severely disturbed. She notes variable numbness and tingling in the legs."
- He stated further:
"She is not able to manage much in the way of domestic chores and she relies on help from her husband and daughters outside help for about two and a half hours a week. Walking tolerance is currently 10 to 15 minutes at a time and sitting tolerance 20 to 30 minutes at a time."
(Page 22)
- And noted:
"[The appellant's] current medication consists of MS Contin 190 mg in the morning and 180 mg at night, she has been taking quite large doses of oral opiates for the last two years or so. She only obtains modest pain control from the Morphine but she notes that when she tries to reduce the dose her pain increases significantly."
"[The appellant] has had multiple pain management procedures none of which have been effective and she is taking quite a large dose of oral Morphine with only modest benefit. Her psychological status is characterised by depression and catastrophisation. Her functional status is severely restricted and has become more so over time. She struggles to undertake even light domestic activity.
In my opinion [the appellant] has developed severe chronic pain syndrome which was triggered by the development of the large L4/5 disc protrusion which caused temporary neurological impairment and required spinal surgery. Her overall condition has deteriorated over time with progressive loss of function and activity tolerance and increasing psychological disturbance, particularly depression. In this situation the large reduction in activity level and increase in emotional disturbance acts as a vicious circle mechanism to increase pain levels, reliance on medication and results in loss of muscle strength and stabilisation of the lumbar spine. Her neurological recovery is in my opinion not an indication that her chronic pain syndrome does not have a valid patho-physiological basis."
55 Dr Salmon's description of the psychological factors as being part of "the vicious circle of chronic pain" is of significance. It is plain that he considered that the psychological factors were caused by her pain, reliance on medication, loss of function and overall condition.
56 As regards future treatment, he stated:
(Page 23)
- "Further treatment should be centred upon an appropriate and intensive exercise and cognitive behavioural pain management program which would give [the appellant] self management techniques which should allow her to gradually increase her activity tolerance and functional state over time and reduce her reliance on medication. Hopefully [the appellant] will obtain such a result from the SCAMP program on which she has recently enrolled… However, given the severity of her chronic pain problem and the severity of her disability, is quite possible that she will not make much progress on the SCAMP program. If that is the case, I think that she should be considered for a trial of intrathecal Morphine with a view to assessing the likely efficacy of a Morphine pump implant."
57 Dr Salmon pointed out that in his experience a morphine pump "can provide the necessary analgesic effect to promote a 'break' in the vicious circle of chronic pain and allow some restoration of activity tolerance and function." He noted, however, that what he described as an "intensive cognitive behavioural intervention" was a "crucial element" in any program designed to break the vicious circle mechanism. He said that an insertion of a morphine pump on its own "rarely produces the necessary reversal and functional decline."
58 He concluded:
"As far as [the appellant's] future employment capacity is concerned, it is clear that she does not have any capacity for work at the present time and is most unlikely to develop such a capacity in the medium term. In the long term I consider it possible that her condition can be substantially improved by the treatment program outlined above but the probability remains that she will not obtain sufficient functional status to return to the workforce. We can hope however that her domestic functional capacity will improve substantially. It is important to realise however that this positive scenario is speculative at the present time and it remains quite possible that [the appellant] will remain in a severely disabled state."
59 Dr Salmon raised two possible ways in which the appellant's psychological condition might be improved. Firstly, there was the SCAMP program (which the respondent was undertaking), but he was pessimistic about this in the light of the severity of her chronic pain problem. Secondly, there was a possibility of the appellant improving by
(Page 24)
- utilising a morphine pump implant, but this in turn was dependent upon a successful "intensive exercise and cognitive behavioural pain management program". Such a program, Dr Salmon said, would be intended to give the appellant "self management techniques, which should allow her to gradually increase her activity tolerance and functional status over time and reduce her reliance on medication".
Dr Silbert's report
60 Dr Silbert reported that as a result of the appellant's symptoms she was able to do only light housework, provided it was at waist height, and she did not need to stretch. She was receiving assistance from the local shire for cleaning when her husband was away, and had difficulty washing the dishes or any activities that involve bending over.
61 Dr Silbert emphasised certain "non-medical factors" that contributed to the appellant's disabled state. He said that there were atypical features in the appellant's condition which, together with his findings on clinical examination, suggested that "non-medical factors [were] prominent in the perpetuation of her symptoms". He observed:
"It would be reasonable to say that [the appellant] has a contribution to her low back pain from the L4/5 disc, facet joints and lumbar musculature, however these are amplified and perpetuated by non-medical factors.
Other psychosocial issues may need to be further explored, as there have clearly been relationship difficulties, and her pain is likely to be a significant positive as well as a negative factor in her relationship."
- And stated:
"[The appellant's] prognosis in the short term must be considered to be poor. Whilst non-medical factors are so prominent, she will continue to have difficulty performing any domestic duties, and cannot be considered to be fit for any form of employment.
In the long term, her prognosis is dependent on correction of non-medical factors. It is likely that her domestic capability will improve but her work capacity will remain reduced."
(Page 25)
62 Dr Silbert was of the view that no further investigations were indicated, save that consideration, he suggested, should be given to "a formal psychiatric opinion, to further explore the psychosocial issues that are likely to be perpetuating her symptoms". He said that this opinion would "identify reversible non-medical factors that in the long term, as they are improved (after settlement of any outstanding medico-legal issues), will result in an improvement in her level of function". He said that "further counselling may be beneficial" and asserted "with appropriate psychological treatment, [the appellant] has potential for significant improvement. This will however only occur in the long term, once other non-medical stresses have been removed".
63 In conclusion, Dr Silbert said:
"In the short term, considering the psychological and physical aspects of her condition, [the appellant] will have difficulty performing home duties.
It is likely that her capacity in the home environment will improve as non-medical factors resolve, however her capacity for employment cannot be fully predicted as her response to removal of non-medical factors is unknown."
The conclusions to be drawn from the reports of Drs Salmon and Silbert
64 I have previously noted that the discretion to be exercised by the insurer must be upon real and genuine consideration and on sound reasons. It follows that the insurer must consider the material before it with due care. A decision based on information which is "both scant and elliptic" will not be an effectual exercise of the insurer's power to determine the claim: Wyllie v National Mutual Life Association Ltd. A decision based other than on reasonable consideration of the material will similarly be defective: Vidovic v Email Superannuation Board.
65 With these principles in mind, I turn, firstly to the report of Dr Salmon. As mentioned, he was of the view that the appellant did not have any present capacity for work "and is most unlikely to develop such a capacity in the medium term". In the long term, while there was a possibility that the appellant's condition could be improved by treatment suggested by him, "the probability remains that she will not obtain sufficient functional status to return to the workforce". As regards her "domestic functional capacity", Dr Salmon said that "we can hope" that
(Page 26)
- this would improve substantially, but it was important to realise that this positive scenario was "speculative".
66 According to Dr Salmon, the appellant's chronic pain syndrome had "a valid patho-physiological basis", albeit she had had a "neurological recovery". Dr Salmon accepted that the appellant's pain, loss of function and activity tolerance led to increasing psychological disturbance, particularly depression. This vicious circle of chronic pain was the fundamental bar to improvement in the future. Essentially, Dr Salmon's view in this respect was identical to that of Mr Vaughan.
67 The learned Commissioner held that Dr Salmon did not express himself in terms:
"That would make it unreasonable to conclude other than [the appellant] is unlikely to ever resume domestic work or to attend to any gainful work as a cook."
- I do not agree with these remarks. As mentioned, Dr Salmon stated expressly that "the probability remains that she will not obtain sufficient functional status to return to the workforce." The prospect that the appellant's "domestic functional capacity" would improve was expressed only as a speculative possibility or a hope. The learned Commissioner's finding ignores, with respect, the meaning of "unlikely": see White v Board of Trustees (at 673), cited above.
68 Overall, in my opinion, Dr Salmon's report is entirely consistent with the final conclusion expressed by Mr Vaughan and supports the likelihood that the appellant is unlikely to ever resume work or be wholly engaged in full-time unpaid domestic duties again. I should say that Dr Salmon, as a specialist in pain management, would be well qualified to express an opinion as to the psychological consequences of pain caused by the injuries suffered by the appellant.
69 I turn now to the report of the neurologist, Dr Silbert, which, on its face, does lend support to the respondent's decision to reject the appellant's claim. That support derives from remarks by Dr Silbert, the following being typical examples:
70 (a) "[N]on-medical factors are prominent in the perpetuation of her symptoms".
71 (b) "[W]ith appropriate psychological treatment, [the appellant] has potential for significant improvement".
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72 (c) "In the long term her prognosis is dependent on correction of non-medical factors. It is likely that her domestic capacity will improve but her work capacity will remain reduced".
73 (d) "[A] formal psychiatric opinion would "identify reversible non-medical factors that in the long term, as they are improved (after settlement of any outstanding medico-legal issues), will result in an improvement in her level of function".
74 Dr Silbert accepted that the appellant's prognosis "is dependent on correction of non-medical factors". It follows that, according to him, the appellant's domestic capability will only improve if and when those non-medical factors are corrected. It is implicit from his remarks that he was of the view that the non-medical factors were not permanent. This is particularly apparent from his reference to "reversible" non-medical factors. It is important, therefore, to identify the non-medical factors to which Dr Silbert was referring, as any assessment of the weight to be attached to Dr Silbert's opinion is dependant on an appreciation of what he considered were the relevant non-medical factors and how they could be reversed or corrected.
75 Dr Silbert, in his report, refers expressly only to two relevant non-medical factors. These were "outstanding medico-legal issues" and "psychosocial issues" involving "relationship problems" that the appellant had with her husband.
76 Of these, the medico-legal issues appeared to be of particular importance to the doctor. He stated expressly that "reversible non-medical factors" will improve "after settlement of any outstanding medico-legal issues". He also stated that "[w]ith her medico-legal issues outstanding", the intrathecal morphine treatment "would be unlikely to be successful". Dr Silbert, however, did not set out the grounds on which he concluded that non-medical factors would improve after settlement of outstanding medico-legal issues. In particular, he did not say that, having regard to the appellant's particular personality, it was likely that her condition would improve once the medico-legal issues were resolved. Dr Silbert appears simply to have assumed that, upon the resolution of outstanding medico-legal issues, the appellant's psychological problems will be corrected. In the absence of any expressed rationale for this conclusion, it seems to me that Dr Silbert's view is based on a generalised opinion held by him that persons who suffer pain for psychological reasons, and who are involved in litigation concerning their injuries, are likely automatically to improve once the litigation is concluded. In my
(Page 28)
- opinion, such a view is not a proper basis on which a decision can be made that a person, who would otherwise be regarded as totally and permanently disabled within the meaning of the policy, is not unlikely to engage in full-time domestic duties in the future. A decision of the latter kind should not be made in reliance upon what may be described as an opinion, neither shown to be based on any medical, scientific or rational foundation, nor related to the particular individual, but merely an expression of a belief not infrequently expressed by certain medical practitioners, lawyers, journalists and others.
77 As regards the "relationship" difficulties that constitute "the psychosocial issues that are likely to be perpetuating her symptoms", two comments can be made. Firstly, the accuracy of the statement that the appellant was experiencing such difficulties at the relevant time is open to question. As Dr Silbert himself notes, although there was evidence that in September 1997 the appellant and her husband had separated, by June 1998 (the date of Dr Silbert's report) they were together again. Secondly, the report does not say that the appellant's marital problems exacerbate her pain state. Rather, it is said that "her pain is likely to be a significant positive as well as a negative factor in her relationship". In other words, Dr Silbert's opinion is that the pain will affect the relationship (rather than the relationship affecting the pain). This is to be compared with the views of Mr Vaughan and Dr Salmon, who considered that the pain causes the psychological problems that in turn affect the pain: hence the vicious circle.
78 It seems to me that, in reality, Dr Silbert is not able satisfactorily to identify the non-medical factors to which he has referred. Presumably, it is for that reason, that he suggested that consideration should be given to obtaining a "formal psychiatric opinion". This recommendation also implies that Dr Silbert does not consider himself properly qualified to express an opinion on these issues. Unlike Mr Vaughan and Dr Salmon, Dr Silbert has prognosticated about psychological factors unconnected with the appellant's injuries and pain. He is unable to identify these unconnected factors further than the references to medico-legal matters and relationship difficulties. That is quite understandable, as factors of that kind, unlike the psychological problems identified by Mr Vaughan and Dr Salmon, would not ordinarily fall within the experience and expertise of a medical practitioner other than a psychiatrist. In my opinion, the inference to be drawn from Dr Silbert's report is that he has, in essence, speculated upon the prognosis to be attributed to the non-medical factors that he found and has raised nothing more than possibilities in that connection.
(Page 29)
79 The learned Commissioner considered that Dr Silbert's report contributed to a finding that there was a need, on the evidence, for the appellant "to address psychiatric and/or psychological issues". His Honour relied, at least partly on Dr Silbert, in concluding that:
"It is likely that [the appellant's] depression and anxiety is related to her physical injury but to what extent and what, if any, other factors are contributing towards her depression and anxiety has not been adequately investigated."
- In my opinion, however, the evidence of all the other medical practitioners that was admitted without objection, including that of Dr Salmon, establishes the likelihood that the appellant's depression and anxiety were caused by her injuries, the pain therefrom, the medication and her overall condition. Dr Silbert's report, for the reasons I have set out, is inadequately grounded on this issue to disturb that likelihood.
Conclusion as to the first ground of appeal
80 As mentioned, Dr Silbert did express the conclusion that the appellant's domestic capacity would improve upon correction of the non-medical factors that were affecting her condition, and he also expressed the view that those non-medical factors were reversible with appropriate psychological treatment. The respondent's duties under the policy, however, did not entitle it, without more, to fix upon those opinions and prefer them to the mass of medical opinion to the contrary. As I have previously stated, the respondent was required to exercise its discretion upon real and genuine consideration and on sound reasons. This required the respondent to consider the material before it, and particularly Dr Silbert's report, with due care.
81 In my opinion, for the reasons I have expressed, no reasonable insurer, having examined Dr Silbert's report in accordance with the these principles, could reject the appellant's claim on the basis of his opinion that non-medical factors, identified by a formal psychiatric opinion, could be reversed to the extent that there would be a material improvement in the appellant's "level of function".
82 Similarly, in my opinion, for the reasons I have expressed, the only conclusion that is reasonably capable of being formed from the medical evidence other than that of Dr Silbert is that the appellant was unlikely ever to be capable of doing the important duties involved in her "work" or in carrying out full-time domestic duties. In my opinion, there is nothing
(Page 30)
- in Dr Silbert's report, on proper analysis and reasonable consideration, that is capable of disturbing this conclusion.
83 Therefore, in my view, the first ground of appeal should be sustained. I have previously referred to the agreement between the parties that the appellant would be entitled to the money value of the policy (being $142,882) if the court decided that the respondent acted unreasonably in rejecting her claim, having regard to the merits of that claim as evinced by the medical reports. In the circumstances, I would uphold the appeal, set aside the judgment of the learned Commissioner, and order judgment in favour of the appellant in the sum of $142,882.
The failure to disclose the reports of Dr Salmon and Dr Silbert
84 Before concluding there is one further aspect of the appellant's case on which I wish to comment. This concerns the appellant's contention that the respondent acted unreasonably and unfairly in failing to disclose the reports of Drs Salmon and Silbert to her, before rejecting her claim. This issue was fully argued and I think it appropriate to express my views in regard thereto.
85 As mentioned, the respondent obtained the reports of Drs Salmon and Silbert pursuant to condition 7.7 of the policy. This entitled the respondent to require a diagnosis by a medical practitioner "to be confirmed by an appropriate specialist medical practitioner of our choice". The inference is that the respondent required the diagnosis of Mr Vaughan and Dr Garton-Smith (that the appellant was totally and permanently disabled) to be confirmed by Drs Salmon and Silbert. It is apparent from the respondent's letter to the appellant of 9 July 1998 that it relied on the reports of Drs Salmon and Silbert in rejecting her claim. The respondent based its decision on its perception of the views of these doctors without providing the appellant with a copy of their reports and without giving her the opportunity of answering their views.
86 Condition 2.39 of the policy required the appellant to provide "proof to our [ that is, the respondent's] satisfaction" that she was totally and permanently disabled. In this sense the respondent was judge in its own cause. The respondent's omission to disclose the medical reports of the doctors whose advice it had sought has to be seen in this context.
87 The significant points made by Dr Silbert had not previously been raised. These were that there should be further investigation by a psychiatrist and that the "non-medical factors" were "reversible",
(Page 31)
- particularly by resolution of "outstanding medico-legal issues" and presumably by help with the appellant's marital difficulties. The idea that the appellant's permanent disability was caused substantially by the psychological effect of medico-legal issues and marital problems had not previously been mooted by any doctor. The appellant had no knowledge that Dr Silbert would base his opinion on these matters and she was given no opportunity to answer his views.
88 In Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cases 61-175 Hodgson J said at 78,000:
"[B]eyond asking the plaintiff to see a doctor instructed by the defendant because 'further medical evidence is necessary to support your claim' the defendant did not invite the plaintiff to put any additional evidence to support his claim …, much less did they give the plaintiff an opportunity to answer the adverse report of Dr Watts. I do not understand the authorities to require that natural justice in the full sense be given by an insurer considering this sort of case, but it does seem to me that some attention to the requirements of natural justice is part of fairness and reasonableness in dealing with such a case. It seems to me that it may be considered not fair to the plaintiff for the defendant to have acted on a detailed report obtained in the circumstances I have outlined, without giving the plaintiff any opportunity either to balance it by a similar detailed report from one of the treating doctors, much less, as I have said, giving the plaintiff a chance to answer the adverse reports."
89 Hodgson J was of the view (at 78,001) that, by the policy, the insurer was given a positive duty to reach an opinion and to act fairly in doing so. His Honour considered that the failure by an insurer to disclose medical reports adverse to the claimant, with the result that the claimant was not given an opportunity to answer them, could be "sufficient to justify the court in saying that the [insurer] did not act fairly and reasonably in coming to a decision on the [claimant's] claim".
90 In Wyllie v National Mutual Life, Hunter J concluded that the conduct of the insurer was "manifestly unfair" where it failed to afford the plaintiff the opportunity of addressing matters upon which the insurer formed the opinion that he was not totally and permanently disabled. His Honour said:
(Page 32)
- "I think the insurer was obliged to inform the plaintiff of the particulars of the basis upon which that opinion had been reached and so to afford him the opportunity of presenting evidence of his actual capacity."
91 I would, with respect, adopt the approach of Hodgson J and Hunter J. By that I mean simply that, as a matter of contract, when the respondent was determining whether the appellant had provided proof to its satisfaction that she was totally and permanently disabled, it was obliged to act fairly, in good faith and reasonably. These are, after all, the duties to which I have above referred under the heading, "The insurer's duties in exercising its discretion". They are also the duties ordinarily imposed on a person who, by contract, is required to carry out a quasi-judicial function: see WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10 where it was said that it was "implicit in the [engineering] contract" between an employer and a contractor that the duties of the employer, charged with the task of valuing work performed by the contractor (where there was no third party appointed as certifier) were to "act honestly, bona fide, and reasonably: see SandhuvFerizis, unreported; SCt of NSW (Young J); 4630 of 1990; 11 March 1994, and cases such as Perini Corporation v Commonwealth [1969] 2 NSWR 530." (per Ipp J, with whom Kennedy and White JJ agreed).
92 In my view there is nothing in Heitman v Guardian Assurance Co Ltd & Anor (1992) 7 ANZ Ins Case 61-107 and Tonkin v Western Mining Corporation, unreported; FCt SCt of WA; Library No 980201; 20 April 1998 which is contrary to the view that, by the policy, contractual duties of this kind were imposed on the respondent.
93 What did fairness, good faith and reasonable conduct require of the respondent after it had obtained the reports of Dr Salmon and Dr Silbert? On the respondent's view of those reports they contained material adverse to the appellant involving matters not previously raised. The reports had been obtained by the respondent in the course of investigating the appellant's contentions, that is, by exercising its right under condition 7.7 to obtain confirmation of the "diagnosis" by a specialist medical practitioner of its choice. The reports were perceived by the respondent to refute rather than confirm the diagnosis, and to refute it on novel grounds. In my opinion, fairness required the appellant to be given the opportunity of answering the new material before the respondent made its decision. Were that not to be so, the respondent, in its capacity as a party in an adversarial position to the appellant, would be entitled to obtain evidence adverse to the appellant's contentions, not reveal that evidence to the
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- appellant, assume its adjudicatory role, and determine the issue against the appellant by reason of the evidence that had not been disclosed. In my view fairness would not tolerate such a transmogrification from adversary to adjudicator while concealing crucial material.
94 In my view, it would be prejudicial to the insured if the insurer were only to be required to disclose the new material after deciding to reject the claim. If disclosure were to be made before the final decision, the insured would be given an opportunity to answer the new material on its merits. But if disclosure were to be made thereafter, the insured, ordinarily, would only be able to have the decision set aside by demonstrating, in subsequent litigation, that the decision itself was unreasonable.
95 Accordingly, had I considered that the respondent was entitled to rely on the reports of Dr Salmon and Dr Silbert in rejecting the appellant's claim, I would have concluded that the respondent was required, as part of its obligation to act reasonably and with the utmost good faith, to disclose those reports to the appellant before making its decision.
96 ANDERSON J: I agree with Ipp J, for the reasons given by him, that this appeal should be allowed on the ground that it was not reasonable for the respondent to reject the appellant's claim, having regard for the medical evidence. That evidence established that the appellant is totally and permanently disabled within condition 2.9 of the policy. The only contrary view is contained in a report of the specialist, Dr Silbert. There are expressions of opinion by Dr Silbert regarding the possibility that the appellant's disabling symptom will improve upon resolution of what he called "non-medical factors". I agree with Ipp J that the reasoning that supports the opinion lacks sufficient cogency to displace the other evidence upon a reasonable consideration of the evidence as a whole.
97 I prefer not to express an opinion in respect of the ground of appeal which depends on the proposition that the respondent acted unreasonably in failing to give the appellant an opportunity to refute the opinions expressed by Dr Salmon and Dr Silbert in their reports. As it happens, there was nothing in the reports to refute. It should be recorded that it is not a case in which the reports were never disclosed. They were copied to the appellant with the advice that her claim was rejected.
98 The question of what must be done by an insurer to discharge its obligation to act with utmost good faith under this kind of policy is, to my mind, not an easy question to answer in general terms. I would say, however, that I doubt that the rules of natural justice per se have a role to play. Insurance policies are contracts, and the rights and obligations of
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- the parties are to be determined by application of the rules relating to the construction of such contracts and by application of the Insurance Contract Act 1984.
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