Corby v AIA Australia Ltd - [2014] SADC 68

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
CORBY v AIA AUSTRALIA LTD & ANOR
[2014] SADC 68
Judgment of His Honour Judge Stretton
1 May 2014
INSURANCE - ACCIDENT, SICKNESS AND INCOME PROTECTION INSURANCE - CONDITIONS, WARRANTIES AND EXCEPTIONS - TOTAL AND PERMANENT DISABLEMENT OR TOTAL INCAPACITY
The plaintiff made a claim under a policy of insurance covering Commonwealth employees for total and permanent disablement (TPD). The applicable definition of TPD depended upon the construction of the policy, and in particular whether the insured was working more or less than 15 hours per week for 13 weeks “immediately prior to the last day the insured member was at work prior to disablement”. The parties disputed and asked the court to determine the meaning of this phrase.
Held: On a proper consideration of the policy wording, the intention of the policy and the hazard the policy was intended to afford protection against, the phrase "immediately prior to the last day the insured was at work prior to disablement" did not mean the actual last day of work prior to the onset of total disablement, but rather the last day at work prior to the onset of the disabling condition.
Johnson v American Home Assurance (1998) 192 CLR 266; Messagemate Australia Pty Ltd v National Credit Insurance (Brokers) & Ors [2002] SASC 327; Electricity Generation Corporation v Woodside [2014] HCA 7; Prenn v Simmonds (1971) 1WLR 1381; Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390; Darlington Futures Ltd v Delco Australia Ltd (1986) 161 CLR 500; Alex Kay Ptd Ltd v GMH & Hartford (1963) VR 458, applied.

CORBY v AIA AUSTRALIA LTD & ANOR
[2014] SADC 68
Introduction

The plaintiff Juliana Corby is a 47 year old woman. She commenced employment with the Commonwealth Taxation Office in August 2005. She was initially employed full time. Between February 2009 and November 2011, she applied periodically for a reduction in her hours, ultimately working 12 hours per week.
Ultimately the plaintiff retired on the grounds of a claimed inability to work.
In this action the plaintiff claims that she is entitled to be assessed for a total and permanent disability benefit pursuant to an insurance policy provided by the defendants.
This Application
The parties have agreed that the court hear and determine a preliminary issue in the matter. It is anticipated that the matter might resolve upon the determination of the preliminary issue.
In essence, the policy of insurance provides quite different definitions of total and permanent disablement depending on the minimum hours worked by the plaintiff prior to disablement. The parties dispute what that means. Accordingly, they have requested that the court determine whether, for the purposes of determining whether the plaintiff was working at least the “minimum hours” defined in the policy, “disablement” occurs when:
1.the plaintiff first suffered the injury, sickness or disease, or alternatively the illness accident or injury, which she alleges has given rise to her entitlement to total and permanent disablement cover; or
2.the time that the condition first resulted in a reduction of a plaintiff’s hours of work; or
3.upon the plaintiff ceasing to work completely as a result of the condition.
The Evidence
The hearing before me proceeded by way of agreed facts and the tender of certain supplementary materials.
On 1 August 2005, the plaintiff commenced employment with the Commonwealth Government at the Australian Tax Office and became an “ordinary employer – sponsored member” of the Public Service Superannuation – Accumulation Plan on that date.
The Commonwealth Superannuation Corporation, the second defendant, is the trustee of the fund. Under Part IV of the Trust Deed, an “ordinary employer – sponsored member” of the fund is provided with “basic death and invalidity cover” on the terms and conditions of the policy taken out by the second defendant with a life insurance company. The first defendant is the life insurance company.
On 4 March 2010 the first defendant entered into a contract of insurance with a previous trustee of the fund – Australian Reward Investment Alliance, being a group life (death and TPD policy) bearing policy number NP9889 (the policy).
The terms and conditions of the policy required the first defendant to pay to the second defendant a lump sum benefit in the event that an insured member of the fund satisfies the definition of total and permanent disability (TPD).
Under the terms of the policy, which of two different definitions of total and permanent disability applied to an insured member who was a permanent employee was effected by the category of membership of the insured member. Which definition applies is at the root of this dispute.
In short, where a permanent employee is working at least 15 hours per week, the applicable definition of total and permanent disablement is arguably wider and more generous to an employee than where the permanent employee was working less than 15 hours per week. In this matter, the essence of the case is that the plaintiff wishes to be assessed under the policy definition relating to permanent employees working more than 15 hours per week and hence the arguably wider and more generous definition of total and permanent disablement.
In layman’s terms, that wider definition involves an occupational inability test.
On the other hand, where the permanent employee was working less than 15 hours per week the test for total and permanent disablement is not based on occupational inability but is arguably considerably stricter, requiring the loss of certain significant domestic functionalities.
The alternative definitions of total and permanent disability
The terms of the policy contain definitions of “Minimum Hours”, “At Work” and set out the relevant total and permanent disablement cover. The crucial disputed wording appears within the definition of “Minimum Hours”. I set out the definitions of “Minimum Hours” and “At Work”, then the two alternative definitions of “total and permanent disablement”.
Minimum Hours means fifteen (15) hours per week. The minimum hour requirement will be measured at the time of the claim, measuring the average number of hours worked per week over the previous thirteen (13) weeks immediately prior to the last day the Insured Member was at work prior to disablement. (emphasis added)
At Work means the Insured Member is:
·engaged in his or her normal duties, without limitation or restriction due to sickness or injury, and is working normal hours on the day full cover is to commence; and
·Not in receipt of and/or entitled to claim income support benefits from any source including workers’ compensation benefits, statutory transport accident benefits and disability income benefits.
An Insured Member will be considered At Work if on the date full cover is to commence, he or she is on approved leave for reasons other than sickness or injury and not taking into account leave, is capable of performing all the duties of his or her usual occupation without restriction or limitation due to sickness or injury, and working their normal hours on the date full cover is to commence.
A person who does not meet these requirements is correspondingly described as “not At Work”.
Total and Permanent Disablement Cover means that:
(a)The Insured Member, while insured under this policy, has suffered the total and irrecoverable loss of the:
i      sight of both eyes;
ii     use of two (2) limbs;
iii    sight of one (1) eye and the use of one (1) limb;
OR
(b)The Insured Member, while insured under this policy, as a result of injury, sickness or disease:
·   has not performed any work for an uninterrupted period of at least six (6) consecutive months solely due to the same injury, sickness or disease; and
·   is attending a Registered Medical Practitioner and has undergone all reasonable and usual treatment including rehabilitation for the injury, sickness or disease;
·   and after consideration of all medical and such other evidence as the company may require, has become incapacitated to such an extent as to render the insured member unlikely ever to engage in his or her own occupation and any occupation for which he or she is reasonably suited by education, training or experience.
The other arguably more restrictive definition of total and permanent disablement,[1] requiring specific physical inabilities, applicable when an employee had been working less than 15 hours per week, is as follows:
[1]    The defendant disputes that the ADL definition is necessarily more restrictive.
Total and Permanent Disablement Cover (Activities of Daily Living ‘ADL’) means that:
(a)the Insured Member, while insured under this Policy, has suffered the total and irrecoverable loss of the :
i      sight of both eyes;
ii     use of two (2) limbs;
iii    sight of one (1) eye and use of one (1) limb;
OR
(b)the Insured Member, while insured under this Policy, having been for a period of six (6) consecutive months after the occurrence of the illness, accident or injury, is continuously, totally and permanently unable to perform at least two (2) of the following activities of daily living as certified by a registered medical practitioner:
·       Bathing; the ability to wash themselves either in the bath or shower or by sponge bath without the standby assistance of another person;
·       Dressing; the ability to put on and take off all garments and medically necessary braces or artificial limbs usually worn, and to fasten and unfasten the same without standby assistance of another person;
·       Eating; the ability to feed themselves once food has been prepared and made available, without the standby assistance of another person;
·       Toileting; the ability to get to and from and on and off the toilet without the standby assistance of another person and the ability to manage bowel and bladder functions through use of protective under garments or surgical appliances – if appropriate;
·       Transferring; the ability to move in and out of a chair without the standby assistance of another person.
The plaintiff was an “insured member” under the policy and the sum insured for total and permanent disablement cover in respect of her was approximately $220,000.00. That cover commenced on 1 March 2010.
The plaintiff’s claim is made and rejected
The plaintiff initially worked full time for the Commonwealth from 1 August 2005. On or about 9 February 2009, the plaintiff was working 30 hours per week. She applied to vary her full-time hours to extend that part-time employment. In July 2009 she applied to further reduce her hours from 30 hours a week to 22.5 hours per week. This application was approved. In July 2010 the plaintiff made a further application to reduce her hours, this time to 15 hours per week. This application was also approved. On about 26 October 2010, the plaintiff again applied for a review of her hours to reduce them to 12 hours per week. That application was also approved.
The applications by the plaintiff to reduce her hours from 30 progressively down to 12 were made by the plaintiff with reference to the conditions upon which she relies in her claim for TPD cover. It is agreed that for the purposes of this application, the court should proceed on the basis that the reduction in the plaintiff’s hours was agreed by her employer in response to such claims and not for some other reason, such as at the initiative of the employer.
The defendants were informed by the Australian Taxation Office in a letter dated 20 April 2012 that the plaintiff commenced continuous sick leave on 29 November 2011.
On 18 December 2012 the plaintiff was certified by the second defendant as “retired on the ground that, because of any physical or mental condition, she is unable to perform her duties, she will be entitled to invalidity benefits under the superannuation scheme” and received an invalidity retirement benefit accordingly.
In May 2012 the first defendant received a member claim form from the plaintiff claiming a total and permanent disablement benefit under the policy in question.
In September 2012 the first defendant sent the plaintiff a letter advising her that she did not meet the minimum hours requirement under the policy and that accordingly her claim was to be assessed under the arguably more restrictive “activities of daily living” definition in the policy.
On that basis, the first defendant formed a preliminary view that the plaintiff’s claim should be declined and communicated that view to the plaintiff. The claim was finally declined by the first defendant on 30 November 2012. Accordingly, the second defendant formally declined the plaintiff’s claim shortly afterwards.
It is agreed that if the first defendant was correct to calculate the “minimum hours” requirement by reference to the period ending on the last day worked by the plaintiff, the plaintiff worked on average less than 15 hours per week, and the first defendant was correct to apply the more stringent “activities of daily living” total and permanent disablement criteria.
The Law
In Johnson v American Home Assurance[2] Justice Hayne with whom Brennan CJ, McHugh J and Gummow J concurred, said that the fundamental determinant of the extent of coverage provided by an insurance policy is the words of that policy.
[2] (1998) 192 CLR 266.
To determine the meaning of those words, the intention of the policy must be ascertained.[3] That intention may include the commercial purpose or objects of the contract and avoid a result that would plainly make commercial nonsense or work commercial inconvenience.[4]
[3] Johnson v American Home Assurance (1998) 192 CLR 266; Messagemate Australia Pty Ltd v National Credit Insurance (Brokers) & Ors [2002] SASC 327
[4] Electricity Generation Corporation v Woodside [2014] HCA 7; Prenn v Simmonds (1971) 1WLR 1381; Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390; Darlington Futures Ltdv Delco AustraliaLtd (1986) 161 CLR 500 at 510; Alex Kay Pty Ltd v GMH & Hartford (1963) VR 458.
In Johnson v American Home Insurance Justice Kirby although in dissent as to the result, summarised the general approach that ought to be taken to interpreting insurance contracts:
An insurance policy is a species of commercial contract. It must be interpreted so as to give the words used their ordinary meaning. The primary duty of a court is to discern from the language, structure and apparent purpose of the document what it means. Subject to any special statutory rules governing the approach to interpretation and any interpretative rules lawfully contained in the policy itself, a court should give the words used their ordinary operation. But it should be an operation which takes into account the commercial and social purposes of an insurance policy. Wherever possible, an absurd or manifestly unjust result will be avoided upon the hypothesis that such would not have been intended by the parties. Because the primary search is for the ordinary and fair meaning to be attributed to the words used, no court is authorised, under the guise of construction, to make a new contract for the parties which is at odds with the terms of the contract to which they have agreed. In this respect, the primary rule for the construction of insurance contracts is no different from that which governs other written instruments. Maxims and rules of construction, developed by courts as tools to aid in the task of elucidation, are subordinate to the primary duty of construction. This is always to search for meaning of the words used. If, in those words, there is only one meaning, a court may not reject it simply because it regards the result as unfair or otherwise undesirable.
Kirby J also said that notwithstanding these primary rules it is recognised that a liberal approach ought to be adopted in giving meaning to words in the special field of insurance contracts and insurance documentation.
Consideration
The crucial passage of this policy, for present purposes, is the definition of “Minimum Hours”, and in particular the phrase “immediately prior to the last day the Insured Member was at work prior to disablement”.
The issue is whether “disablement” occurs when the plaintiff first suffered the injury, sickness or disease which ultimately gave rise to her cessation of work, which for practical purposes in this case was on or before the time the condition first resulted in a reduction of her hours, or whether on the other hand “disablement” occurs at the point where she ceased to work completely as a result of the condition.
The first step is to examine the words of the policy in this matter. The minimum hour requirement is measured at the time of the claim, and is defined as the “average number of hours worked per week over the previous 13 weeks immediately prior to the last day the insured member was at work prior to disablement”.
The plaintiff argues that the crucial phrase “at work prior to disablement” means prior to the commencement of the illness, accident or condition that results in disablement. In other words, prior to the onset of the disabling condition. In essence, they argue disablement means the start of the disablement or disabling condition. On the other hand the defendants argue that the phrase ought be interpreted literally as the “last day the insured was at work” prior to being completely unable to continue to work due to the disablement.
There is a definition of “At Work” (capitalised) as “engaged in his or her normal duties, without limitation or restriction due to sickness or injury, and is working normal hours on the day full cover is to commence …”. “At Work” within the definition of “Minimum Hours” is not capitalised. Accordingly, this definition of “At Work” is not necessarily intended to apply to the “at work” (uncapitalised) within the crucial “Minimum Hours” definition.
In this way, the wording of the policy prescribes different tests for total and permanent disablement, dependent upon whether a person is working more or less than 15 hours prior “to the disablement”.
Where the person is working less than 15 hours “prior to the disablement”, their employability no longer forms part of the test for disablement. It may be it was felt that where a person is ordinarily working very restricted hours in any event, it is likely or at least possible that they already have significant restrictions in their working ability. Or, perhaps such a situation affords far less scope for the effective assessment of a subsequently disabled person on the basis of their earlier capability of working.
Whatever the reason, the policy imposes a work capability assessment where the person was working 15 hours or more and does not impose that assessment where the person was working under 15 hours.
Where the person was working under 15 hours an arguably more stringent test requiring a loss of certain significant domestic functionality is imposed. It may be that the imposition of these two differing tests reflects the different predominant antecedent work day activity of persons in those two different situations. In other words, where a person is working more than 15 hours per week, there is a significant quantum of work activity whereby their pre-disablement capabilities can be assessed and compared to their allegedly disabled condition, whereas where they are working less than 15 hours per week, a significant component of their day is made up of non vocational activity, such that their pre and post disablement activities might be more easily measured in terms of their home based activities.

The plaintiff argues that the primary benefit of the policy is the provision of a monetary amount for those who become totally and permanently disabled. The plaintiff submits that it would not be the intention of such a policy to pose a different or higher test simply because disablement occurs progressively, nor is there any logical policy reason for that to be the case. The plaintiff argues that the insurance policy should be construed with regard to the hazard it is intended to afford protection against. The plaintiff argues it can scarcely have been intended to deny an insured disablement protection simply because their condition is degenerative or progressive rather than sudden.
The defendant argues that the policy should be interpreted as it is written. They argue that the literal wording of the policy requires an assessment of the working hours of a worker on the last day that they were at work. The defendant argues that this is a more certain date, and provides a clear framework for assessing which definition of total and permanent disablement shall apply.
I have had regard to the comprehensive submissions made by both parties. I do not set them out here.
Viewing the document as a whole, the definitions and the particular words in question and taking into account the overall purpose of the policy and the nature of the assessments that it envisages occurring, the intention and thus the meaning of the document must be determined.
In my view, the policy intends to and does draw the crucial distinction as to which definition of total disability should apply based on an assessment of whether prior to the disabling condition the person was working more or less than 15 hours per week. The difference in the consequent disability assessment is essentially whether the assessment is primarily work based or home based.
It makes sense that where a person was working more than a certain number of hours prior to the onset of a disabling condition you would assess their disablement in terms of a work based occupational inability test, but where prior to the onset of the disabling condition they were working minimal hours and by inference spending most of their pre-disablement time on domestic or other activities of daily living you would assess their disablement in terms of those activities of daily living. On analysis, this is the likely intention and hence meaning of the policy.
In my view therefore, it is much more likely that the differing disablement tests were intended to apply based on whether the person was working more or less than 15 hours prior to the commencement of the disabling condition. It is difficult to see the logic, intention or commercial purpose behind the contrary interpretation argued by the defendants.
Conclusion
Accordingly, in my view, for the purposes of determining whether the plaintiff was working at least the “minimum hours”, “disablement” occurs when the plaintiff first suffers the injury, sickness or disease, or alternatively the illness, accident or injury which ultimately causes total and permanent disablement.
I will hear the parties as to any further orders.