Callander (In His Own Right and as Executor) v CCSL P/L &
[2011] VCC 1454
•16 December 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
DAMAGES
Case No. CI-10-05226
| Kevin Francis Callander (In His Own Right | Plaintiff |
| and as Executor of The Estate of the Late Jillian Doris Callander) | |
| V | |
| CCSL Pty Ltd (ACN 104 967 964) | First Defendant |
| AIA Australia Limited (ACN 004 867 861) | Second Defendant |
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| JUDGE: | S. Davis |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 6, 7, 10,11 and 12 October 2011 |
| DATE OF JUDGMENT: | 16 December 2011 |
| CASE MAY BE CITED AS: | Callander (In His Own Right and As Executor) v CCSL P/L & Anor |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 1454 |
REASONS FOR JUDGMENT
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Catchwords: Life insurance cover under industry superannuation scheme - avoidance by insurer on grounds of non disclosure and misrepresentation - Insurance Contracts Act 1984 (Cth) s 21, s 29(3) - whether grounds for avoidance established - duty of good faith.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Bingham | Maurice Blackburn |
| For the Defendants | Mr M. Settle | HWL Ebsworth |
| HER HONOUR: |
1 In this proceeding the plaintiff, Mr Kevin Callander, seeks payment of death benefits under a life insurance policy[1] taken out by his wife, Mrs Jillian Callander, prior to her death in 2008. The defendants seek to avoid the policy for the applicant’s failure to comply with a duty of disclosure and/or for misrepresentation.
BACKGROUND
[1] Exhibit 2.
2 Mr Callander brings the claim as the administrator of the estate of his wife, Mrs Callander and as a plaintiff in his own right, in relation to the life insurance policy. The policy was issued on 19 June 2008 and is not a group policy. The sum insured and claimed is $375,000. Under the policy, Mr Callander was the beneficiary. The life insured was the deceased, Mrs Callander. Mrs Callander died on 28 or 29 December 2008, aged 55 years.
3 The policy owner was Trustco Super Services Ltd (Trustco), which was the first defendant’s predecessor as trustee of the AIA Superannuation Fund. The first defendant, CCSL, is the trustee of the AIA Superannuation Fund.
4 On 4 June 2008 Mrs Callander completed an application for membership of the AIA Superannuation Fund (the application), and it was through that fund that the life insurance policy was obtained from the second defendant, AIA Australia Limited (AIA). Mrs Callander applied for membership as a risk only member, and for term life insurance only.[2] The application included an application to the AIA Superannuation Fund.[3] The application for life insurance was made with the assistance of an adviser, Mr Derek Elsley, who had previously assisted Mrs Callander with applications for life insurance with Suncorp Metway; Suncorp Life; AIA and Tower.
[2] Exhibit 1.
[3] Exhibit 1, 18.
5 The defendants say that the duty of disclosure was brought to Mrs Callander’s notice a number of times at the time she completed the application. The application formed part of the Product Disclosure Statement (PDS)[4]. At page 45 of the PDS there is a statement in the following terms setting out the duty of disclosure under the Insurance Contracts Act 1984 (Cth) (the Act):
Your Duty of Disclosure
Before you enter into a contract of insurance with an insurer, you have a duty under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or could reasonably be expected to know, which is relevant to the insurer’s decision whether to accept the risk of the insurance and, if so, on what terms.
You have the same duty to disclose those matters to the insurer before you extend, vary or reinstate this contract of insurance.
Your duty of disclosure also extends to the Trustee under the terms of the Superannuation Term Life Plan based on your membership in the Fund. This ensures that the Trustee is able to meet its disclosure obligations.
Non-Disclosure
If you fail to comply with your duty of disclosure and the insurer would not have entered into the contract on any terms if the failure had not occurred, the insurer may avoid the contract within three years of entering into it. If your non-disclosure is fraudulent, the insurer may elect to avoid the contract at any time from its inception. An insurer who is entitled to avoid a contract of insurance may, within three years of entering into it, elect not to avoid it but to reduce the sum insured in accordance with a formula that takes into account the contribution that would have been payable if you had disclosed all relevant matters to the insurer.
The consequences outlined above also apply if you elect the Superannuation
Term Life Plan.
[4] Exhibit 3.
6 On the first page of the application, there are also passages headed Your Duty of Disclosure and Non-Disclosure. The duty of disclosure is again repeated on page 19 of 24 of the application, where the applicant makes his or her declaration. This is again repeated on page 18 of 24 where the applicant makes a declaration in applying for membership to the fund.
7 In completing the application for life insurance, Mrs Callander made a declaration.[5] Part of that declaration stated:
I/We have read the Product Disclosure Statement including your Duty of Disclosure notice set out in the Significant Risks section and understand its contents and what is meant by my/our duty of disclosure. I also understand that my/our duty continues after I/we have completed this application until AIG Life has accepted the risk.
[5] Exhibit 1, 19.
8 Mrs Callander provided the following information, amongst other things, in her application. On page 4 of 24 of the application dealing with personal history, at question 2(a) and (b), there are questions about whether Mrs Callander smoked or drank alcohol. The questions are as follows:
2 (a) Have you smoked tobacco or any other substance during the last twelve months? If ‘Yes’, please state substance and quantity below. (Please note ‘packet’ is not sufficient detail.)
(b) Do you drink alcohol? If ‘Yes’, please state weekly quantity and type
below. (Please note ‘social’ is not sufficient detail.)(c) Have you ever received advice, treatment or counselling for use of drugs
or alcohol?(d) Within the last five years, have you occasionally or regularly taken any
stimulants, sedatives, medications or drugs?
9 Mrs Callander ticked ‘No’ to questions 2(c) and (d) and ‘yes’ to questions 2(a) and (b). At question 7 on that page, Mrs Callander expanded her answers and wrote:
2 (a) max 15 cigarettes p/day
2 (b) 2 to 3 standard drinks (wine-glass) p/week on av.
10 On page 5 of 24 of the application dealing with doctors details, at question 1(b), Mrs Callander stated that the last visit to her personal doctor was on 20 January 2008, due to flu.[6]
[6] It appears that between 20 January 2008 and the time she completed the application, Mrs Callander attended her general practitioners on eight occasions, not including an attendance at the Wagga Wagga Base Hospital on 17 April 2008.
11 On page 6 of 24 of the application dealing with medical history, question 1(e) was in the following terms:
1 Have you suffered symptoms or, or had, or been told you have, or received any advice, investigation or treatment for any of the following?
…
(e) Depression, anxiety/stress state, fatigue, panic attacks, psychiatric
treatment/counselling, mental illness or nervous disorder.
…
If you have answered ‘Yes’ to any of the above questions, please also complete a questionnaire for each condition (see Questions Q to V). Please use Section V, Multi-Purpose Questionnaire, if a specific questionnaire for the condition is not provided.
12 Mrs Callander answered ‘No’ to question 1(e) above and so the mental health questionnaire on page 15 of 24, which asked more detailed questions about an applicant’s mental health, was not completed.
13 On 29 July 2009, Mr Callander’s solicitors made a claim on the policy.
14 On 21 September 2009, Mr Callander’s solicitors provided to AIA’s claims assessor, Ms Amanda Pipkorn, the deceased’s treating doctor’s complete medical records (“the Medical Records”). The Medical Records were provided by Ms Pipkorn to Ms Mayda Semec, a senior underwriter with AIA since 1987.
15 On 2 October 2009,[7] Ms Semec sent an email to Ms Pipkorn that stated:
[7] Exhibit 4.
Amanda, I have reviewed this case not [sic] the long history of ongoing depression and alcohol abuse in recent years which was not disclosed on the insured’s application.
More specifically, I confirm that we would have declined all death cover in view of the following:
1. Longstanding depression for 30 yrs which didn’t appear to be improving. In October 2005 referral to a counsellor was refused. Insured was treated over the years with Efexor (with varying doses), valium and cipramil as well as stilnox and Temaze for insomnia which wasn’t improving either. Doctor’s records show no suicidal thought with clinical evaluation revealing a ‘low risk’ for suicide. Interestingly however the further clinical notes reveal the daughter suspected her mother may be suicidal.
2. Recent alcohol abuse resulting in counselling in April & May 2008 only months prior to her application in June 2008.
3. Domestic violence was also noted in the doctor’s records in May 2008 but limited detail available however query if bruises & contusions on 14 May 2008 were due to domestic violence?
4. History of significantly raised cholesterol in 2004 & 2005 with high trigs requiring Lipitor medication. Subsequent readings are unknown, however query if these remained controlled after 2005?
5. Elevated blood pressure noted in April 2008 of 164/92 requiring treatment with Karvea. Query control as BP was still elevated on 23 May 2008 at 157/95.
Our decision to decline would have been based on the combined history in items 1-3 above, ie, long standing depression with poor prognosis combined with alcohol abuse and domestic violence.
16 On 23 November 2009[8], AIA wrote to Mr Callander’s solicitors and stated in part:
[8] Plaintiff’s court book (PCB) 162.
…Mrs Callander knew she had a long standing history of Depression. She also
knew that she had high Blood Pressure, high Cholesterol and an alcohol
problem. She knew she had received treatment and advice for these conditions.
…In our opinion, the above matters should have been disclosed to AIA Australia before it entered into the policy of insurance, in accordance with the obligations imposed by section 21 of the Act.
. ..The matter has been referred to the underwriter who has confirmed that had AIA Australia been aware of Mrs Callander’s full medical history, the Application would have been declined. AIA would not have agreed to enter into a contract of insurance with Mrs Callander on any terms. …After full consideration of all matters, we hereby give notice that the policy has been avoided from inception, in accordance with Section 29(3) of the Act on the grounds of non disclosure and misrepresentation.
17 On 23 December 2009, AIA refunded to CCSL the premiums paid of $1,041.88. CCSL has sought instructions from Mr Callander’s solicitors seeking payment instructions for reimbursement of these premiums.
18 On 18 January 2010, Mr Jamie McNicol of CCSL wrote a file note concerning his telephone conversation with Ms Semec on 14 January 2010 to “discuss the information provided by her in relation to the AIA underwriting guidelines”.[9] In that conversation, Mr McNicol learned what some of the abbreviations in the guides meant: for example, “Std” means standard; “P” means postpone (the applicant will have to reapply in 12 months time); “D” means decline.
[9] Exhibit 4.
19 He then noted:[10]
[10] Ibid.
According to Mayda the process to assess the Callander claim was as follows:
1. Depressive disorder identified and selected on the underwriting guidelines;
2. Depressive disorder was rated as severe, requiring it rated as Major depression/bipolar order (sic);
3. Additional factor of Associated Substance Abuse (Alcohol) was added;
4. The above rated as a “Decline” under AIA’s underwriting guidelines.
Mayda also advised that the domestic violence noted in the claim information would also have added to the Additional Factors leading to a Decline had the application not already been declined due to the substance abuse.
20 On 27 January 2010,[11] Ms Pipkorn wrote to Mr McNicol, relevantly, in the following terms:
[11] PCB 165.
Further to the information provided to you to date and to the recent conversation held with Ted Kapourelakos, Bernadette Matijas and myself, I now confirm the following.
• At the time of the retrospective underwriting opinion, this case was reviewed used AIA’s stringent and strict underwriting guidelines (of which you already hold a copy) • The case was treated as per our usual practices and procedures. It was reviewed as per AIA standards for such cases. We confirm our decision to decline the claim was based on the medical non- disclosure of the following matters.
• Longstanding depression for 30 years • Alcohol abuse resulting in counselling in April and May 2008 • Domestic Violence As such we believe our decision to decline the claim and Avoid the Policy from inception should stand.
21 In her evidence, Ms Semec acknowledged that these four documents are different versions of the reasons why the defendants said they would have refused life insurance cover to Mrs Callander had the relevant disclosure been made. In cross-examination, Ms Semec agreed that there is nothing in the Mood Disorder Life Ratings of the Swiss Re Life Guide (the Ratings) which refers to “domestic violence” and that this factor would not properly have been treated as an “additional factor” under the Ratings. She also agreed that the reasons for declining cover were the major depression plus “associated substance abuse”. In these reasons, I have therefore limited my consideration to the defendants’ contention that there was a failure to disclose depression plus “associated substance abuse” or matters relevant to the establishment of the existence of these conditions, and that had those matters been disclosed, the defendants would not have provided life insurance cover to Mrs Callander on any terms.
THE HEARING
22 The defendants called two witnesses: Ms Semec, a senior underwriter with AIA, and Dr Pramod Nathaniel, Chief Medical Officer with AIA. No witnesses were called by the plaintiff.
23 Counsel for the plaintiff objected to the tender of the Medical Records. I invited counsel to provide written submissions in relation to this issue so that I could decide the question of admissibility as part of my reasons for decision. I have considered the oral evidence and all of the material tendered by the parties, as well as all of the written submissions filed by counsel.
DUTY OF DISCLOSURE
24 The plaintiff pleaded that:
6. At all material times from 19 June 2008, there was a policy of life insurance numbered 12800179 effected by the Second Defendant with the First Defendant in respect of the deceased as the life insured (“the policy”).
25 In paragraph 6 of their Defences, each of the defendants pleaded that the life insurance policy number 12800170 was issued by AIA to Trustco and that the “life insured” was Mrs Callander.
26 In final submissions, counsel for the plaintiff submitted, for the first time and without prior notice to the defendants, that Mrs Callander owed no duty of disclosure because Mrs Callander is not the “insured” referred to in section 29(3) of the Act. It was submitted that the contract of insurance was between the defendants, CCSL and AIA, that the policy owner and the “insured” was Trustco, and that any duty owed under section 29 was owed by Trustco to AIA.
27 It was submitted on behalf of the defendants that I ought not entertain the plaintiff’s submission because the issue was not raised on the pleadings and no notice was given to the defendants during the course of the hearing that it would be raised. In the alternative, the defendants relied on section 25 of the Act, which is in the following terms:
25 Misrepresentation by life insured
Where, during the negotiations for a contract of life insurance but before it was entered into, a misrepresentation was made to the insurer by a person, who, under the contract, became the life insured or one of the life insureds, this Act has effect as though the misrepresentation had been so made by the insured.
28 In response, it was submitted on behalf of the plaintiff that there was no allegation of misrepresentation in this case, but that in any event section 25 exposes the fact that an “insured” and a “life insured” are different, and that the person whose life is insured under a policy is not necessarily the “insured”.
29 As this issue was raised so late, and without notice, I did not have the benefit of full argument in relation to it. In the circumstances I consider it appropriate to consider the merits of the plaintiff’s case as originally pleaded, and to accept for the purpose of these reasons, that the defendants are correct in asserting the existence of a duty of disclosure on the part of Mrs Callander.
WAS THERE A BREACH OF THE DUTY OF DISCLOSURE?
30 I assume for the purpose of this section of my reasons that Mrs Callander owed a duty of disclosure under section 21 of the Act.
31 Section 21 of the Act provides:
21 The insured’s duty of disclosure
(1)
Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:
(a) the insured knows to be a matter relevant to the decision of the
insurer whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to
know to be a matter so relevant.
The Issues
32 In paragraph six of its Amended Defence, the first defendant alleges breach of the duty of disclosure in that Mrs Callander failed to disclose the following six matters:
a)
A history of her depression spanning 30 years prior to September 2004;
b) Her ongoing depression;
c)
That she was regularly prescribed Efexor, an antidepressant, from approximately September 2002 to February 2008;
d) That she was prescribed Cipramil, an antidepressant, in June 2007;
e) That she underwent a mental health assessment on 17 April 2008 which arose as a result of alcohol abuse and/or a domestic disturbance and that during that assessment she provided the following information: that in the 12 months prior to the assessment she drank 30 glasses of alcohol over six days a week and that her last drink was the day before the assessment (five to six glasses); and that she was currently on Efexor. She was otherwise referred for an appointment with a drug and alcohol worker on 21 April 2008; f) That she received counselling in respect of an alcohol problem in May 2008. 33 Although these matters are pleaded as discrete breaches, I consider in substance that two breaches are identified: the failure to disclose a history of, and ongoing depression requiring medication with anti-depressants; and the failure to disclose an alcohol problem. However I note that AIA asserted during the trial and during submissions that it was inevitably bound to reject an application where two conditions were present in an applicant but not disclosed by them: depression AND “associated substance abuse”.[12] Accordingly, the defendants’ case is that Mrs Callander owed a duty to disclose two conditions: depression and “associated substance abuse”.
What the defendants must prove
[12] The link between an alcohol problem, and “associated substance abuse”, according to the defendants, was made by the evidence of Ms Semec, who indicated what she thought “associated substance abuse” meant, and how she construed the entries in the Medical Records allegedly referring to alcohol use by Mrs Callander.
34 So characterised, AIA must establish that Mrs Callander knew or ought to have known that she suffered both conditions and that she was aware that by suffering both conditions, she knew, or ought have known that the presence of these conditions might affect the insurer’s decision to grant her life insurance cover. The defendants allege that Mrs Callander knew or ought to have known she was duty bound to disclose these matters given that she was specifically asked relevant questions in this regard.[13]
[13] Exhibit 1.
35 In the light of the above, I consider that the defendants must establish, on the balance of probabilities:
a) That Mrs Callander actually suffered from depression; and
b)
That she knew or ought to have known that she suffered depression; and
c)
That she knew or ought to have known that this condition might affect the risk to the insurer; and
d)
That she had suffered from “associated substance abuse” (which begs the question as to how the condition is defined and diagnosed); and
e)
That she knew or ought reasonably have known that she had the condition of “associated substance abuse”; and
f)
That she knew or ought to have known that this condition might affect the risk to the insurer; and
g)
That to the extent that it is the combination of depression and “associated substance abuse” which affects the risk, that Mrs Callander knew or ought to have known that in combination, her depression together with her “associated substance abuse” might have affected the risk to the insurer.
36 In addition, of course, the defendants must establish that the non-disclosure or misrepresentation made a difference, and that the insurer would not have issued the policy on any terms had the disclosure been made or the misrepresentation not been made.
Was there a failure to disclose depression and/or treatment for depression with Efexor?
37 The defendants relied on the contents of the deceased’s Medical Records provided by Mr Callander’s solicitors, Maurice Blackburn, to AIA under cover of letter dated 21 September 2009.[14]
[14] Exhibit 5.
38 The covering letter from Maurice Blackburn stated that they were enclosing “the deceased’s treating doctor’s complete medical records”, and that Mr Callander had not been permitted to see the medical records as “it would cause him great upset”. The letter stated: “We note that you are now in a position to assess our client’s claim and we await your decision within 28 days”.[15]
[15] Ibid.
39 The defendants say that this letter demonstrates knowledge by the plaintiff and his solicitors that the Medical Records were relevant to AIA’s decision, and constitutes representations of a number of admissions, namely, that the Medical Records:
(a) contain Mrs Callander’s personal doctor’s records of her; and
(b) record that Mrs Callender was: suffering from depression at the time
of the application and had been suffering from depression for many
years and was being prescribed medication, including antidepressant
medication;
40 The plaintiff says that most of the clinical notes, and all references to the drugs Efexor, Stilnox and Cipramil (as well as to the other drugs mentioned in the Medical Records) are inadmissible, either because they are irrelevant, or because they constitute an ‘opinion’, or because it is not clear whether the references to depression were what the doctor diagnosed or a record of what Mrs Callander said. In his final submissions, counsel for the plaintiff conceded that the printed list of Previous Prescriptions which appears at the end of the clinical notes after the records of investigations is admissible as evidence of the fact that these medications were prescribed to Mrs Callander. However, he did not concede that the fact of these prescriptions established that Mrs Callander was being treated for depression. He challenged the admissibility of Dr Nathaniel’s evidence that Efexor and Cipramil were drugs licensed for the treatment of depression.
Evidence
41 Ms Semec gave evidence as to the entries in the Medical Records to which she had regard and the process by which she formed her view that Mrs Callander had failed to disclose that the she was being treated for depression with Efexor at the time she signed her application form. She was extensively cross-examined about this process, and I found her evidence in this regard quite unsatisfactory. On the other hand, I am satisfied, for the reasons set out below, that Mrs Callander did suffer depression for which she was receiving treatment in the form of antidepressant medication around the time of signing her application form. I am also satisfied that, because she was being prescribed anti-depressants and reporting depressive symptoms to her doctor, she knew she was suffering depression. I am also satisfied that she knew or ought to have known that this condition might affect the risk to the insurer.
Findings and reasons
42 The records of Mrs Callander’s treating doctor[16] refer to depression on the following dates:
[16] Exhibit 5.
• 22 September 2004 – “30 yrs depression”
• 10 October 2005 – “Depressed mood.” “Panic attacks”
• 17 December 2007 – “Depressed mood” • 22 April 2008 – “Depressed mood”
• 14 May 2008 – “Depressed” 43 I consider that if the reference to depression is what the doctor diagnosed, the opinion rule does not apply.[17] If the reference to depression in the entries above is a record of what Mrs Callander said, then I consider that this is evidence which is admissible for a number of reasons:
[17] Evidence Act 2008 (Vic) s 79.
(a) It is a matter highly relevant to the proceeding;
(b)
It was a representation of fact by Mrs Callander, a person who might reasonably be supposed to have had personal knowledge of the asserted fact;
(c)
The treating doctor’s records are business records. The definition of ‘business’ included a reference to a profession.[18] The Medical Records form part of the records kept by the treating doctor in the course of a business.[19] The Medical Records contain a previous representation made or recorded in the document in the course of, or for the purposes of the business.[20] Mrs Callander’s representation was made by her, and she had or might reasonably be supposed to have had personal knowledge of the asserted fact; or, it was made by the treating doctor on the basis of information directly or indirectly supplied by Mrs Callander, who had or might reasonably be supposed to have had personal knowledge of the asserted fact.[21]
(d)
AIA can adduce evidence of the contents of the Medical Records, and in these instances the references to depression by tendering the Medical Records which form part of the records of or kept by a business and which are a copy of or an extract from or summary of the document in question.[22]
[18] Evidence Act 2008 (Vic) Dictionary, Part 2 Other Expressions, 1 References to businesses.
[19] Evidence Act 2008 (Vic) s 69(1)(a)(i).
[20] Evidence Act 2008 (Vic) s 69(1)(b).
[21] Evidence Act 2008 (Vic) s 48(1)(e).
[22] Evidence Act 2008 (Vic) s 48(1)(e).
44 I note that there are two references in the Medical Records where “depression” appears in conjunction with “efexor”. The entry on 22 September 2004 reads, relevantly: “30 yrs depression, on efexor 150 2 yrs”. The entry on 10 October 2005 notes, inter alia, that Mrs Callander “1/presented feeling down, teary. Refusing referral to couceller (sic)”, and noted symptoms including “depressed mood”. The entry then noted “2/for increase efexor to 300 mg daily and for r/v if needed”. I consider that the most probably inference available from these entries is that Mrs Callander was being treated for depression, with Efexor, for two years prior to September 2004 and in October 2005. In this context, I consider that the most appropriate conclusion to draw is that the other references to prescriptions of Efexor to Mrs Callander in the Medical Records refer to repeat prescriptions of Efexor in the treatment of her depression.
Conclusion
45 On balance, I consider that the defendants have established that Mrs Callander suffered from depression around the time she applied for her life insurance policy; that she knew or ought to have known that she suffered from depression; and that she knew or ought to have known that this condition might affect the risk to the insurer.
46 However, I consider that this finding (of breach of a duty to disclose a history or/and treatment for depression) is not determinative in this case due to the defendants’ concession during the hearing that a history of and/or treatment for depression (regardless of whether it was mild, moderate or severe) would not, taken alone, have resulted in refusal of Mrs Callander’s application. Counsel for the defendant opened his case on the basis that Iife insurance policies are issued by AIA to people who suffer depression. He stated that if an applicant suffers from depression, there may well be a premium loading, or there may be postponement of the application until further medical records are received. He stated that what is determinative in a decision to refuse cover is whether there is a combination of depression and “substance abuse”, and he submitted that the “substance abuse” in this matter is the drinking of alcohol. The defendants contend that the decision to decline would have been based on the decision that Mrs Callander suffered from major depression and from the “additional factor” of “associated substance abuse”. It was Ms Semec’s evidence that where a person was regarded as suffering from depression and associated substance abuse, the application of the Ratings required that life insurance cover be denied.
Was there a failure to disclose a mental health assessment in April 2008 and counselling for an alcohol problem in May 2008?
47 I turn to the final two allegations of breach of the duty of disclosure.
The issues
48 As mentioned above at paragraph nine in answer to question 2(b) in the Personal History section of the application, Mrs Callander stated that she drank “2 to 3 standard drinks (wine-glass)” per week on average. In answer to question 2(c), she ticked no to the question asking whether she had “ever received advice, treatment or counselling for use of drugs or alcohol”.
49 As noted in paragraph 39 above, the defendants rely on the covering letter from Maurice Blackburn enclosing the medical records from Mrs Callander’s treating doctor as an admission of the material contained in the records, which include entries in May 2008 containing references to alcohol and counselling, and which also include some records of Wagga Wagga Base Hospital recording notes relating to Mrs Callander; in particular that Mr Callander told the Wagga Wagga Base Hospital that Mrs Callander was drinking four to five bottles of gin per week.
50 Counsel for the plaintiff submitted that, on its own, the fact of undergoing a health assessment on 17 April 2008 was irrelevant and there was no evidence that the mere undergoing of an assessment would have let do the proposal for insurance being rejected. On this basis alone, neither Mrs Callander nor a reasonable person could be expected to know that it was relevant to disclose it. Any potential relevance emerges only as a result of the defendants’ assertion that the assessment was “as a result of alcohol abuse and/or a domestic disturbance”.
51 In his supplementary written submissions dated 14 November 2011, Counsel for the defendants relied on the entries in the Medical Records of 14 May 2008 (which noted “admitted alcohol problem”) and 20 May 2008 (which noted “counselled alcohol”). It was submitted that these matters occurred very shortly prior to the application on 4 June 2008. He submitted that the answer given by Mrs Callander to question 2(b) was contrary to “an admitted alcohol problem and being counselled for alcohol”. He relied on the answer “no” given to question 2(c) and said the answer was “contrary to Mrs Callander having received advice for use of anti-depressant drugs and counselling on alcohol”. He submitted that in the light of the fact that Mrs Callander did answer the questions in the application the critical question is whether the representations Mrs Callander provided were misrepresentations.
52 In his written reply dated 15 November 2011, Counsel for the plaintiff strenuously objected to these submissions, arguing that they were made without leave in that misrepresentation was neither sufficiently pleaded nor the subject of a submission. The defendants’ Opening and Closing Addresses referred to the answers given to questions 1 and 2 of the application, but did not assert that the answers to any question were false and constituted a misrepresentation. According to Counsel for the plaintiff, the trial was pleaded and run as a non-disclosure case. I consider that these misrepresentations were not sufficiently pleaded and were not the subject of the first round of final submissions. However, even if leave were given to plead these specific instances of misrepresentation, for the reasons outlined below I am not satisfied on the evidence before me that the answers given constitute misrepresentations.
53 In the light of Ms Semec’s concession referred to above that “domestic violence” was not an “additional factor” under the Ratings which, when combined with depression, could have warranted denial of the life insurance cover to Mrs Callander, I confine my consideration to the defendants’ submissions concerning “alcohol abuse”. As I have already noted above, there is a troubling gap between the particulars of breach as pleaded and the submission that Mrs Callander suffered from “associated substance abuse” and failed to disclose that condition to the insurer. According to the defendants, the gap is bridged by the evidence of Ms Semec to the effect that the relevant entries in the Medical Records demonstrated that Mrs Callander had a problem with alcohol, which Ms Semec considered constituted or fulfilled the description of “associated substance abuse” so as to attract, when combined with depression, inevitable rejection of an application for life insurance.
Relevant entries in the Medical Records
54 The clinical note for 14 May 2008 is in the following terms:
Dr Edward Mishricky
LEFT CHEST
LEFT UPPER ARM
BOTH WRISTS C, TENDER
LEFT FOREARM B
RT UPPER ARM B
BRUISES
CONTUSIONS
RT FLANK SMALL AREA
RT UPPER THIGH B
DOMESTIC VIOLENCE CLAIM
TEARY
DEPRESSED
ADMITTED ALCOHOL PROBLEM
Actions:
Prescriptions printed:
TEMAZE TABLET 10 mg 1 tab nocte
55 The clinical note for 20 May 2008 is in the following terms
Dr Edward Mishricky
Actions:
Prescription added: Pyridoxine Hydrochloride Tablet 100 mg ONE daily
Prescription added: VALIUM TABLET 5 mg ONE b.d. p.r.n.
Prescriptions printed:
VALIUM TABLET 5 mg ONE b.d.p.r.n.
Prescriptions printed:
PYRIDOXINE HYDROCHLORIDE TABLET 100mg ONE daily
NOW 2-3 /DAY
PLAN COMPLETE ABST IN 2 WEEKS
COUNSELLED ALCOHOL
DOMESTIC VIOLENCE
56 The notes from Wagga Wagga Base Hospital[23] comprise five pages (the first two pages are repeated) which are numbered pages 7 to 11 of a facsimile dated 17 April 2008. Ms Semec agreed that the description of the amount of alcohol consumed, noted at page 154 of the Plaintiff’s Court Book (PBC) as being a total of 20 glasses during the week and 10 during the weekend, is inconsistent with the note at PCB page 155 that “J claims 3 standard drinks per wk – Husband states – 4/5 bottles of gin per week”. She said that she did not accept the truth of either note. She agreed that she did not know if the remainder of the notes on PCB page 155 were correct or accurate.
Ms Semec’s evidence
[23] PCB 154-158
57 When asked on what basis she concluded that Mrs Callander was telling an untruth, Ms Semec replied that her conclusion was reached on the basis of the clinical note of 14 May 2008 where the doctor had noted “admitted alcohol problem”.[24] She agreed that the entry for 22 April 2008 included the following:
Poor sleep. Early morning wakening. Depressed mood. Normal self-esteem. No irrational fears. No panic attacks. No compulsive behaviours. No delusions. No hallucinations. No suicidal thoughts. No substance abuse.
[24] Transcript [T] 96.
58 Ms Semec said that she did not take the words “no substance abuse” to be a diagnosis by the doctor, but would have taken the reference to “depressed mood” to be a diagnosis. She then conceded that the doctor “probably has made that diagnosis of no substance abuse on that occasion”.[25]
[25] T 97 line 25.
59 Ms Semec was taken to the screenshot which includes the words “associated substance abuse”. She was asked what definition she applied in reaching her conclusion, and she responded, after a few attempts[26] that it was “someone who needs counselling for a drinking problem”. When asked where she got her definition of “substance abuse” from, she said: “Well, in my field as an underwriter. My understanding, my knowledge and experience of substance abuse related to drugs and alcohol abuse”.[27] She said that she could not comment on what the other underwriters understand of the term. She said that it was not a psychiatric diagnosis, “as far as I’m aware”. It was suggested to her that there is a definition of substance abuse in the fourth edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM IV) and she then agreed that “possibly” substance abuse is a diagnosis that needs to be made by a psychiatrist.[28]
[26] T 101.
[27] T 103 line 17.
[28] T 104.
60 Ms Semec agreed that “associated substance abuse” means substance abuse associated with major depression”.[29] She was asked to indicate the basis upon which she concluded that the “substance abuse” was “associated with depression”. Her answer was that she reached that conclusion based on the Wagga Wagga Base Hospital notes at page 158 of the PCB where there was a reference to drug and alcohol counselling. She agreed that in those same hospital notes[30] there was an assertion by the writer of “no depression”. Ms Semec said that she that she “would have looked at those in combination with the doctor’s records”.[31] She asserted that[32] substance abuse “exacerbates and worsens a mental illness disorder”. Ms Semec said that the basis for her conclusion concerning the presence of “associated substance abuse” was in pages 10 and 11 of the Wagga Wagga Base Hospital notes.[33]
[29] T 107 line 29.
[30] PCB 156.
[31] T 108 line 7.
[32] T 111 line 25.
[33] PCB pages 157 and 158.
61 In re-examination, Ms Semec said that the conclusion she reached in her email dated 2 October 2009 to Ms Pipkorn[34] that there was “alcohol abuse” was based on the Medical Records entries of 14 and 20 May 2008 as well as the Wagga Wagga Base Hospital notes. She relied on what she regarded as the fact that Mrs Callander had had drug and alcohol counselling as being suggestive of the fact that Mrs Callander had a drinking problem.
Findings and reasons Wagga Wagga Base Hospital notes[34] Exhibit 4.
62 I consider, for the reasons stated below, that even if admissible as ‘business records’, these notes ought to be excluded under s 135(a) and (b) of the Evidence Act 2008. I consider that they do not provide admissible evidence that the assessment was as a result of alcohol abuse or that Mrs Callander was suffering from “associated substance abuse”.
63 First, it is obvious from the facsimile header that the notes constitute pages 7 to 11 of a larger facsimile and it is evident that they do not constitute the whole of the relevant record. They are therefore inherently unreliable in that they are incomplete and lacking other material which may provide context and other relevant content. Second, even the pages available are not wholly legible. The crucial page on which the defendants base their allegations about drinking[35] has some portions blacked out which appear to be explanatory or instructional text. Third, the author uses abbreviations and symbols that cannot be interpreted with certainty. For example, Ms Semec could not interpret the first four words or symbols on page 158 PCB and even then made assumptions about what the abbreviations meant. Fourth, there was no evidence from the defendants as to the identity or qualifications of the author, or the purpose for which the interview was conducted, or the instructions given to the author.
[35] PCB 154.
64 Fifth, it is not clear who was present at any interview and therefore, not clear, to the extent that the notes constitute a report of what was said, whether the report was something said by Mrs Callander or someone else. For example, the first entry on PCB page 157 is headed “clinical impression/formulation: include issues to be addressed”. This suggests that this may be a record of what the author was told by someone other than Mrs Callander and was noted by the author as things to take up at some time in the future with Mrs Callander. It is not even clear whether Mrs Callander was present for the whole or even part of the making of the notes. For example, the entries on PCB page 158 appear to suggest that at the time Mrs Callander was “home in care of family”. The entries on that page and, indeed, on all the pages, may relate to conversations with other people. There is simply no statement in the notes that Mrs Callander was interviewed or provided any of the information.
65 Sixth, the report contains contradictory material – for example as to the amount of drinking. It is impossible to know from the report what is information obtained from Mrs Callander, or from her husband, or from others.
66 Finally, it is not clear to what extent the statements constitute an expression of opinion by the author, or the qualifications of the author to express that opinion. Headings such “clinical impression” and “provisional diagnosis” suggest that the partial record is a record solely of that author’s opinion. It is clear from CB 157, which refers to ICD-10 and MH-OAT, that classification of a certain level of drinking as “alcohol abuse” is a diagnosis or opinion. Such opinion is inadmissible. The same can be said of the reference to “referred to D & A worker”,[36] which is a reflection of the opinion formed by the author. It is not clear that the referral actually occurred.
Receiving counselling in respect of an alcohol problem in May 2008
[36] PCB 157.
67 This pleading relies on the entries under 14 May and 20 May 2008 in the Medical Records. I note that there is no reference to counselling in the entry on 14 May 2008. There is a reference to “admitted alcohol problem”, but it is not clear without more whose problem is being referred to or what the problem was. I note that there is no reference to “problem” in the entry on 20 May 2008. The reference to “counselled alcohol” on that day, without detail as to the content of the counselling, is of little assistance. It is not clear whether the doctor gave counselling to Mrs Callander about her use of alcohol or the use of alcohol by someone else in the family. In any event, a discussion about alcohol in this context does not establish that there was a drinking “problem” or what that “problem” was. I note that even Ms Semec conceded that that the fact (if established) that Mrs Callander had drug and alcohol counselling merely “suggested” that she had a drinking problem.[37] I consider that given these limitations, it is impossible to safely draw any conclusion one way or the other as to the presence of alcohol abuse, let alone “associated substance abuse”.
[37] T 32 line 29.
68 I consider that there is no evidence for the conclusion that at the time she signed her life insurance application her assertion that she was drinking “2 to 3 standard drinks (wine-glass) per week on av” was not the true position.
69 On the material before me, I am not satisfied on the evidence before me that her answer to question 2(c) of the application form (“have you ever received advice, treatment or counselling for use of drugs or alcohol?”) was in fact incorrect at the time she signed her application on 4 June 2008.
70 Finally, I consider that there is no basis to conclude that Mrs Callander knew, or a reasonable person in the circumstances could be expected to know that the matters referred to would be relevant to the insurer’s decision whether to accept the risk.
71 In particular, there is no satisfactory foundation in my opinion for any factual conclusion that at the time she filled in her life insurance application form, Mrs Callander knew she was suffering from “associated substance abuse”, or was experiencing symptoms that would give rise to the diagnosis of such a condition, or had been counselled that she was suffering from this condition or was at risk at suffering from this condition due to any alcohol that she may have been drinking. In addition, there is no satisfactory foundation for a conclusion that at the time she completed her life insurance application form she knew that she was suffering from “associated substance abuse” in combination with depression, or that she knew or ought reasonably have known that the combination of these conditions was relevant to the insurer’s risk.
72 There is no cogent evidence before me as to what “associated” means in the phrase “associated substance abuse”. To the extent that “associated” means that there must be a causal relationship between depression and any alleged alcohol abuse, I note that no such causal relationship was even suggested, let alone proven, in this case.
Conclusion
73 In the circumstances, I am not satisfied on the evidence before me that Mrs Callander breached her duty of disclosure in relation to these matters. Nor am I satisfied on the evidence that a reasonable person in the circumstances could be expected to have known that the matters referred to above would be relevant to the insurer’s decision to accept the risk. To the extent that there is an allegation of misrepresentation in this regard, I am not satisfied that there was any relevant misrepresentation.
WOULD THE INSURER HAVE REFUSED TO INSURE MRS CALLANDER
HAD SHE MADE THE RELEVANT DISCLOSURES?74 Even if I were satisfied that Mrs Callander breached her duty of disclosure or that she made material misrepresentation about matters affecting the insurer’s risk, the defendants must also establish on the balance of probabilities that the insurer would not have entered into a contract with Mrs Callander as insured on any terms if the disclosure had been made or the misrepresentation had not been made.
The issues
75 I note that the defendants pleaded that on the basis of the six matters taken together, the insurer would not have entered into the policy. However, during the course of the hearing, the defendants conceded that the actual position was that cover would only have been denied where there was a combination of depression with “associated substance abuse”.
76 The defendants relied on the evidence of Ms Semec. Ms Semec said that the Ratings is a Swiss Re document, and that AIA uses this document because AIA has a treaty arrangement with Swiss Re and is obliged to use the Swiss Re underwriting manual. She said that underwriters assessing applications for life insurance would be required to use the document in assessing mental health of applicants. She said that the position of AIA in June 2008 was that “if there is any form of substance abuse, in combination with any mental illness related disorder, cover is declined”.[38] She was taken to the relevant pages of the manual[39] and pointed to the section entitled “Additional Factors”. She confirmed that “associated substance abuse” was an “additional factor”. She confirmed that the table in the relevant page of manual showed that an application would be denied if there was “associated substance abuse” in combination with depression.
[38] T 134 line 46.
[39] Exhibit 6.
77 The defendants submitted that “there is an absolute requirement in the underwriting guidelines for AIA to deny cover where there is substance abuse with any level of depression”.[40]
[40] See page 21 of the Defendants’ closing submissions dated 25 October 2011.
78 It was submitted on behalf of the plaintiff that Ms Semec’s evidence was inadmissible because it was irrelevant, or alternatively, that it was unreliable because of its internal inconsistencies.
Legal principles
79 Even if there was a breach of the duty of disclosure or misrepresentation, the insurer would only be entitled to avoid the policy if it proves that it would not entered into a contract of life insurance with the insured on any terms if the relevant disclosure had been made or the misrepresentation had not been made. On the authorities, a mere statement by the particular insurer to this effect will not suffice: cogent and persuasive evidence is required to demonstrate that the particular insurer’s office practices would have compelled this result and further that those practices were actually applied in comparable policies.[41]
[41] Bauer Tonkins Insurance Brokers v CIC Insurance (1995) 9 ANZ Ins Cas 61 – 298; Insurance Law in Australia, Sutton, 1991, 2nd edn, Law Book Co.; Principles of Insurance Law in Australia and New Zealand, Kelly and Ball, 1991, Butterworths.
80 It is not sufficient for the defendant to establish only that, had the requisite disclosure been made, it would have made further inquiries to determine whether or not to accept the risk either at all or at a different premium or on different terms.[42] The persuasiveness of a witness’s evidence that he or she would have acted differently if disclosure had been made may be affected by the surrounding circumstances.[43]
Findings and reasons
[42] Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd (2003) 12 ANZ Ins Cas 90-116; [2003] QCA Queensland Court of Appeal per McPherson JA at [79].
[43] See Outline of Final Submissions of Plaintiff dated 25 October 2011 at 46.
81 First and foremost, I note that the term “associated substance abuse” is not defined in the manual. Nor was any written guideline discovered about what the term means, how an underwriter is to determine its presence or absence, and whether it requires diagnosis by a medical practitioner. The absence of a definition of the term in the manual, and the absence of any written instruction as to how an underwriter is to determine the presence of it in an applicant, is in my opinion critical to the determination of the defendants’ claim concerning the inevitability of rejection. How, one might ask, can an insurer provide cogent evidence of what it would have done (in this and in comparable cases) if it cannot demonstrate what the term means, whether in terms of a medical diagnosis or in terms of standard industry practice, or in terms of any written guideline or definition? In this case, the presence of this additional factor (in combination with depression) is said to lead inevitably to rejection of cover. It is therefore critical for there to be clear evidence of what the insurer’s practice is. In this case, the term “associated substance abuse” is not defined in the manual, and there is no written direction or explanation of it which has been discovered by the defendants.
82 The only evidence before me concerning the meaning of the term, and the insurer’s practice, was the unsupported and internally inconsistent oral evidence of Ms Semec, which I reject for the reasons outlined below. Whilst Ms Semec’s evidence was about how she went about satisfying herself that Mrs Callander had an alcohol problem which amounted to satisfaction of the additional factor of “associated substance abuse”, I consider that her evidence falls far short of providing cogent evidence about office practice in relation to the application of the term “associated substance abuse” in the manual.
83 I turn to Ms Semec’s evidence, which I found unsatisfactory for a number of reasons.
84 Ms Semec gave different definitions of the term during the course of her evidence: at first she said[44] it meant “someone who needs counselling because they have a drinking problem”, although she agreed that this was “just my understanding”. Later, she said that any use of alcohol was substance abuse,[45] and that her understanding of “substance abuse” came from her experience as an underwriter.[46] She said that she could not comment on what Ms Axton or other underwriters would understand the term meant. She agreed that the term “associated substance abuse”[47] was probably a psychiatric diagnosis that needed to be made by a psychiatrist, but that she did not know.
[44] T 101.
[45] T 102.
[46] T 103.
[47] T 104.
85 However, the way in which she dealt with the Medical Records exemplifies the problem with a non-medically qualified underwriter deciding what the term means. Ms Semec agreed that she relied and accepted as part of the information the statements in the Wagga Wagga Base Hospital notes. She then agreed that in those notes the statements concerning what Mrs Callander was drinking were inconsistent, and said she did not accept the truth of either statement, but based her conclusion that Mrs Callander was telling an untruth based on the Medical Records (where the doctor notes “admitted alcohol problem”). She first stated that she did not know if the entry by the doctor on 22 April 2008 (where he notes “no substance abuse”) was a diagnosis by the doctor or something he was told and did not take the entry into account. However she said she would have taken the statement about “depressed mood” in the same entry to be a diagnosis by the doctor.[48] She then said that probably the doctor had made a diagnosis of no substance abuse.[49] This concession is totally at odds with the stated basis on which Ms Semec said she interpreted the medical and hospital note and concluded that Mrs Callander was telling an untruth. It is also totally at odds with her conclusion that there was alcohol abuse.
[48] T 97.
[49] Ibid.
86 Ms Semec at first said that she came to her opinion in January 2010 on the basis of an understanding that “associated substance abuse” meant substance abuse associated with major depression.[50] She said she came to that view based page 158 of Exhibit 5, a page of the Wagga Wagga Base Hospital notes which she said indicated that “there was D and A counselling”, although she had earlier said that because she did not know who made the hospital records, she did not accept them.[51] However, Ms Semec admitted that the entry at page 158 of Exhibit 5 was indecipherable. It is not possible in my opinion to infer from these obscure words that a diagnosis of “associated substance abuse” should be made. Ms Semec admitted that she was “confused” about the meaning of “associated substance abuse”.[52]
[50] T 107
[51] T 98.
[52] T110.
87 There are further unsatisfactory aspects of Ms Semec’s evidence. First, Ms Semec admitted that the email of 22 October 2009 and the letter of 23 November 2009 were two different versions of what the insurer would have done.[53] The email of 2 October 2009 stated that the decision to decline “would have been based on the combined history in items 1-3 above, ie, long standing depression with poor prognosis combined with alcohol abuse and domestic violence”. The letter of 23 November 2009, on the other hand, listed all the alleged inaccuracies in the answers to questions given by Mrs Callander, as not disclosing or accurately disclosing: the amount of alcohol being consumed; the alleged “fact” of “formal alcohol counselling in April 2008 at Wagga Wagga Base Hospital which indicated “current substance intoxication abuse or dependence which had existed for some time”; the date of her last consultation with a doctor; the prescriptions she had been receiving for Efexor, Stilnox, Karvea, Temazepam and Vibramycin; her medical history of raised cholesterol and high blood pressure requiring treatment with medication; her longstanding depression for which she was being treated with Efexor, Valium, Cipramil, Stilnox and Temaze.
[53] T 77.
88 I note that the letter of 27 January 2010 constitutes yet another version of the reason for refusing the application: non disclosure of longstanding depression; alcohol abuse resulting in counselling in April and May 2008; and domestic violence.
89 Ms Semec’s answers in cross-examination revealed further variations as to what the insurer would have done. At one point[54] she stated that the issue was the “history of depression with associated alcohol misuse”. This is clearly at odds with the letter of 23 November 2009, which referred to a “longstanding history of depression”, knowledge that she had high blood pressure, high cholesterol and an alcohol problem and knowledge that she “had received treatment for these conditions”.
[54] T 68.
90 Second, Ms Semec’s evidence about the use of the Swiss Re manual was full of inconsistencies. She stated that the insurer was obliged to use the manual because of the treaty arrangement with Swiss Re and that the guidelines were stringent and strict. However, she accepted that no written instructions by the insurers to its underwriters to use the manual had been discovered. In cross- examination, Ms Semec stated that the manual was only a guide and that an underwriter may use their own judgment. Thus Ms Semec could not give evidence about what other underwriters would have done or what office practice was. However Ms Semec’s evidence about what Ms Axton also appeared to change during the course of her evidence. At first she stated that Ms Axton had no authority to decline an application. Later, Ms Semec said that if Ms Axton had wanted to reject the application she would have been instructed to go to a level 6 or level 7 underwriter. There is no evidence before me as to what those underwriters would have done. Ms Semec’s evidence was that the insurer has between 30 and 35 underwriters, with different levels of experience, training and education. She admitted that different people could interpret the facts and the manual differently.[55] It follows that another underwriter might have done something different to Ms Semec, who is a level 12 underwriter.
[55] T 78.
91 That this is possible is illustrated by how Ms Semec herself dealt with the manual. She initially said that she looked at the manual before forming her opinion.[56] Later she said that she was not able to recall whether she looked at the manual.[57] A little later she said that she had not looked at the screenshot or life ratings until January 2010[58] or at the Mood Disorders document until about 29 September 2011.[59] Finally, she said that she did not look at any part of the manual before writing the email of 2 October 2009; that she only looked at the screen shot part of the Ratings before the conversation of 14 January 2010 and that she only looked at the Mood Disorders part of the manual in the week before trial. Her evidence was that she gave her underwriting opinion before even looking at the manual and that it was from her own experience that she concluded she would have declined the application. But it is not sufficient for her to give evidence as to her practice; rather, AIA must establish that this is company practice. It is not clear to me that her evidence was about the insurer’s office practice or that her approach would have been adopted as a matter of office practice in comparable cases.
[56] T 60.
[57] T60-63, 79.
[58] T 80.
[59] T 81, 84.
92 Most importantly, Ms Semec’s evidence was to the effect that if the insurer had received information about depression, or consumption of alcohol, or domestic violence, in the ordinary course a medical report would have been obtained.[60] She said that if there is “a number of different medications used and there’s a few medical conditions in someone’s medical history we would normally obtain a report from the treating doctor”.[61] She said that if question 2(c) on the application had been checked, a medical report would have been automatically obtained.[62] At one point she agreed that the correct rating in relation to depression was not, as she initially stated, to decline, but rather “postpone”.[63] There is therefore no evidence before me that the application would have been declined if the relevant medical reports had been obtained and other inquiries carried out. On the contrary, the mere fact that such information would have prompted the insurer to obtain a medical report demonstrates that decline of cover was not inevitable, but rather that the insurer was likely to further explore the option of issuing some sort of insurance cover.
[60] T 35.
[61] T 153.
[62] T 33-4, 45.
[63] T 130.
93 Page 354 of the PCB provides a table to assist in categorising mood disorders as mild, moderate or severe. The manual states:
When the diagnosis is unclear, or there is of dysthymia or cyclothymia with no formal psychiatric diagnosis of major depression or bipolar disorder favourable or unfavourable features as listed below may help to categorise the risk.
94 One of the unfavourable features in the table is “alcohol/drug misuse”. It is clear from the instruction that this feature, if present in a person who has not been formally diagnosed with major depression, “may help to categorise the risk”. We know from the concession made by the defendants that even a severe depression, on its own (even where the severity has been determined by reference to “unfavourable factors” such as “alcohol misuse”) does not necessarily warrant rejection of a life insurance application.
95 On the other hand, “associated substance abuse” is listed in the manual as an “additional factor” . Where it is present and there is depression of any level, the manual’s table suggests that an application for life insurance would be rejected. However, Ms Semec’s evidence suggests that her understanding was that “associated substance abuse” meant substance abuse associated with major depression.
96 In any event, it is clear that “associated substance abuse” (which leads to an automatic decline when found alongside depression) must mean more than “alcohol misuse” (which is a feature which may assist to assist the risk level where a person has not been formally diagnosed with depression). Ms Semec agreed that possibly “associated substance abuse” is a psychiatric disorder which needs to be diagnosed by a psychiatrist. In the absence of any medical evidence in this regard, I am unable to draw a conclusion that Mrs Callander suffered from “associated substance abuse”.
97 Third, Ms Semec’s evidence could only be relevant if it went to the office practices and procedures. Having conceded that underwriters exercised their own judgment and that no written instructions to underwriters to use the Manual had been discovered, and having demonstrated that she was not applying a medical definition of “associated substance abuse” in her analysis of Mrs Callander’s consumption of alcohol, I am not satisfied that she could give evidence in such categorical terms about what other underwriters would have done.
98 In any event, the emphatic assertion by Ms Semec that the application would have been declined had the material in the Medical Records been disclosed, does not sit with her concession during cross-examination that if the insurer had received information about consumption of alcohol, in the ordinary course a medical report would have been obtained.
99 In summary, AIA has failed to satisfy me that had the disclosure been made, or had the misrepresentation not bee made, the inevitable application of the insurer’s practice would have resulted in rejection of the application for life insurance.
Conclusion
100 For these reasons, I am not satisfied that AIA has discharged its onus of proving that it would not have been prepared to enter into a contract with Mrs Callander on any terms if the non-disclosure had not occurred or the misrepresentations had not been made.
I am therefore not satisfied that the insurer had an entitlement to avoid the contract under s 29(3) of the Act.
[64] I note that the plaintiff denies ever receiving the letter dated 23 November 2009 and denies that there is any evidence that the insurer avoided the policy on that date. I consider it appropriate to assume for the purpose of these reasons that the letter was sent and received by Mr Callander’s solicitors.
DID THE INSURER COMPLY WITH ITS DUTIES IN REACHING THE DECISION TO AVOID THE POLICY?[64] 101 For the sake of completeness, I turn to the final limb of the plaintiff’s submissions.
The issues
102 On 12 October 2011, at the close of the Defendants’ evidence, the plaintiff was granted leave to amend the Statement of Claim dated 11 November 2011 to plead that AIA owed certain duties to Mr Callander and to plead breach of these duties.
103 It is alleged at paragraph 10(c) that AIA had duties to act towards the plaintiff:
(a) with the utmost good faith;
(b) fairly, in good faith and reasonably;
(c) to give the plaintiff an opportunity to consider and respond to the conclusions drawn by AIA before failing or refusing to pay the death benefit under the life insurance policy held by Mrs Callander.
104 The plaintiff alleges the following particulars of breach of the said duties:
•
Failure to properly inform itself as to the guidelines, standards and practices for underwriting staff to be applied by AIA;
•
Failure to seek information to resolve conflicting bodies of material within the Medical Records concerning the amount of any alcohol being consumed by the deceased, and the presence or absence of depression, domestic violence and substance abuse;
• Failure to consider relevant material; •
Failure to obtain complete material including a report from the treating doctor; any evidence of a diagnosis of any relevant condition or further information concerning the Wagga Wagga Base Hospital notes;
•
Reaching conclusions not open on the material and/or without the necessary medical expertise;
•
Failing to confirm the accuracy of any conclusions reached before taking refusing to pay the death benefit; and
•
Failing to give the plaintiff an opportunity to respond to the conclusions reached before refusing to pay the death benefit.
105 Further or alternatively, the plaintiff argued the probability is that either as a matter of fact, or consistent with its duty to deal fairly with Mrs Callander, if Mrs Callander had given the medical material to the insurer at the time of making the application, then the insurer would have sought further information from her; her doctors; the author of the Wagga Wagga Base Hospital notes; other relevant persons, including perhaps her family members and perhaps independent medical specialists. Only then, it was submitted, would the insurer have been in a position to make a proper decision.
106 AIA denies that it owed Mr Callander the alleged opportunity to consider and respond because AIA’s decision was based on material (the Medical Records) provided by the plaintiff’s solicitor and Ms Semec’s evidence was that AIA would not have been prepared to enter into a contract of life insurance with Mrs Callander on any terms if she had complied with her duty of disclosure and disclosed the matters in the Medical Records.
107 AIA submitted that even if there was an alleged opportunity to consider and respond, there was nothing more that AIA could have done, for a number of reasons. First, even if AIA had written to Mrs Callander’s personal doctor, that doctor “would have referred to the Medical Records” and “no further clarification of the situation would have occurred”. Second, even if AIA had written to Wagga Wagga Base Hospital, the responsible person would have referred to its records, and “no further clarification of the situation would have occurred”. Third, AIA could have written to Mr Callander to ask him about his representation that Mrs Callander was drinking 4 to 5 bottles of gin per week, but Mr Callander chose not to give evidence, and so it is open to the Court to infer that the evidence he was able to give would not have assisted his case. Finally, it was submitted that Maurice Blackburn must have been aware of inconsistencies within the material it provided and did not provide further material to assist in the interpretation of those Medical Records.
Legal principles
108 In the exercise of powers affecting the interests both of itself and the claimant, the insurer is under a duty of good faith and fair dealing which requires it to have due regard for the interests of the claimant.[65]
[65] The Distillers Company Biochemicals (Australia) v Ajax Insurance Co 130 CLR 1 at 29-31.
109 If a policy is expressed in terms requiring the insurer to form a particular opinion as a condition of its own liability, there is an implied obligation on the insurer to consider and determine whether it should form that opinion,[66] and the insurer is obliged to act reasonably in considering and determining that matter.[67] This involves a consideration and determination of the correct question.[68] However, the insurer’s decision cannot be successfully attacked unless the plaintiff proves the decision was not reasonably open.
Findings and reasons
[66] Sayseng v Kellog Superannuation P/L 2003 NSWSC 945.
[67] James Noel Eric Butcher v Port (1985) 1 NZLR 491.
[68] Ibid at 496.
110 Ms Semec admitted that there was contradictory information in the Medical Records and that there were inconsistencies in that material about how much Mrs Callander was drinking. Ms Semec gave evidence that if the insurer had received information about domestic violence, consumption of alcohol, or about depression, in the ordinary course a medical report would have been obtained. In these circumstances, I reject AIA’s submission that no clarification would have occurred had AIA written to Mrs Callander’s treating doctor, or to Wagga Wagga Hospital. It is probable, in my opinion, that AIA would have been able to obtain clarification of the treating doctor’s entries concerning “no substance abuse”, and the doctor’s entries relating to alcohol intake and counselling. AIA would also have been able to obtain a full version of the Mental Health Assessment conducted at Wagga Wagga Hospital, to identify the author of the document, and to obtain clarification of the purpose of the document and its relevance to establishing the presence of “associated substance abuse”.
111 If one accepts Ms Semec’s eventual position that “associated substance abuse” when present with depression, would have resulted in refusal of an application for life insurance, and that she regarded alcohol consumption or misuse as the basis upon which a conclusion about the presence of associated substance abuse might be made, Ms Semec’s duty was to make appropriate inquiries about these matters from Mrs Callander’s treating doctor, and to satisfy herself on proper expert medical material that “associated substance abuse” was present.
112 There is no satisfactory evidence that the application would have been declined if the medical reports had been obtained and other enquiries had been carried out.
Conclusion
113 I therefore consider that if the correct decision in accordance with the insurer’s duties towards Mr and Mrs Callander would have been to seek further information as set out above, it follows that the determination to avoid the policy, without complying with the insurer’s duties to treat Mr and Mrs Callander fairly, was in breach of the insurer’s duties and ought to be set aside by the Court and an order made by the Court for payment of the claim.[69]
CONCLUSION
[69] McArthur v Mercantile Mutual Life Insurance CO Ltd [2002] 2 Qd R 197.
114 It follows from the above that even if Mrs Callander owed a duty of disclosure to the defendants and partially breached that duty of disclosure (in relation to the non-disclosure of her depression, for which she was being treated with anti-depressants), the defendants have not discharged their onus of establishing that they would have declined her application and not issued a policy to her on any terms. In addition, in failing to make appropriate enquiries upon receipt of the Medical Records, I consider that the insurer failed to comply with its duty of utmost good faith towards Mr and Mrs Callander in reaching its decision that it would not have been prepared to enter into a contract of life insurance with Mrs Callander on any terms if the relevant duty had been complied with or the misrepresentation had not been made.
115 For the above reasons, there will be judgment for the plaintiff. I will hear counsel as to the appropriate orders to be made.
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