Galaxy Homes Pty Ltd v National Mutual Life Association of Australasia Ltd - [2012] SASC 141

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Preliminary Issue)
GALAXY HOMES PTY LTD v NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LTD
[2012] SASC 141
Reasons for Decision of The Honourable Justice Nicholson
20 August 2012
INSURANCE - LIFE INSURANCE - THE CONTRACT
Plaintiff insured was party to a policy of insurance which it terminated pursuant to a contractual right to "end the plan" within 9 months or so of taking out the policy. The policy provided for a benefit payable on death of the life insured and also payable in advance of death where the life insured "has a terminal illness" as defined. The insured was first diagnosed with cancer some 2 months or so after the ending of the plan and the insured made a claim for the Terminal illness benefit. The claim was rejected by the insurer. On the basis of a Statement of Agreed Facts the court was asked to determine two Agreed (preliminary) Issues, including whether, in the circumstances as agreed, the policy on its proper construction, was capable of responding to the claim.
Held: (i) The two Agreed Issues are to be answered in favour of the insured; (ii) The remaining factual disputes between the parties are no longer to be the subject of the insurer's "opinion" as contemplated by the policy terms but are to be determined at trial.
Lewison and Hughes The Interpretation of Contracts in Australia 2012 Thomson Reuters; Australian Concise Oxford Dictionary 1987; Supreme Court Rules 6R 211 and 223; Insurance Contracts Act 1984 (Cth) s54, referred to.
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290; Byrnes v Kendle (2011) 243 CLR 253; Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945; Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas 90-123, [2005] NSWCA 214; Halloran v Harwood Nominees Pty Ltd [2007] NSWSC 913; Oberlechner v Watson Wyatt Superannuation Pty Ltd (2008) 15 ANZ Ins Cas 90-134; Dargan v United Super Pty Ltd [2011] NSWSC 1316; Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113; McArthur v Mercantile Mutual Life Insurance Co Ltd [2002] 2 Qd R 197; Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175; Heitman v Guardian Assurance Co Ltd (1992) 7 ANZ Ins Cases 61-107; George Maurice Norman Farkas v Northcity Financial Services Pty Ltd [2004] NSWSC 206; Tower Australia Ltd v Farkas (2005) 64 NSWLR 253; Larwint Pty Ltd v Norwich Union Life Australia Ltd (2007) 15 VR 371; New Zealand Shipping Co v Societe Des Ateliers Et Chantiers De France [1919] AC 1; Butcher v Port [1985] 1 NZLR 41; Wyllie v National Mutual Life Association of Australasia Ltd & Ors [1997] NSWSC 146; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, considered.

GALAXY HOMES PTY LTD v NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LTD
[2012] SASC 141
Civil
NICHOLSON J.
Introduction

The plaintiff, Galaxy Homes Pty Ltd (variously “Galaxy” or “the insured”), is a trustee of the Galaxy Homes Unit Trust and, in that capacity, entered into a life insurance policy with National Mutual Life Association of Australasia Ltd (variously “NMLA” or “the insurer”). The life insured was Mr Peter Eden. On the Insurance Schedule,[1] the policy commencement date is recorded as 23 February 2011.[2] It is common ground that the policy was cancelled with effect no later than 17 November 2011.
[1] Exhibit P2.
[2] However, an agreed fact (see Statement of Agreed Facts tendered as exhibit P1) is to the effect that the insurance policy was issued on 24 February 2011. In fact, according to exhibit P2, the “Schedule Issue Date” was 16 March 2011. At this stage of the proceedings, nothing turns on these potential discrepancies.
The policy contained a “Terminal illness benefit” cover pursuant to which, if the relevant insuring clause were to be satisfied, the insured would be entitled to early payment of the “life benefit”, otherwise payable only on the death of the life insured. On 28 January 2012, Mr Eden was diagnosed with metastatic melanoma. The surgeon, Mr David Walsh, who, when operating on Mr Eden in December 2011, identified certain tumours in the abdominal cavity which contributed to this diagnosis, has provided a medical certificate dated 24 April 2012[3] in which he expressed the opinion that he expected Mr Eden to live for six months. Insofar as it may become relevant, a finding as to the date from which this 6 month prognosis was intended to operate can be left to another day. It may need to be the subject of further evidence and submissions. In addition, Mr Walsh provided a letter setting out his findings and expressing an opinion, dated 20 April 2012.[4] In that letter Mr Walsh expressed the following opinion.
The second issue is the onset of what stage Peter would have developed metastatic melanoma. Certainly the tumours that I discovered in his abdominal cavity in December 2011 would have been present for at least six months.
[3] Exhibit P1, annexure E.
[4] Exhibit P1, annexure F.
On the basis of these alleged findings and opinions of Mr Walsh, it is the insured’s contention that the condition as to which Mr Eden, ultimately, was diagnosed in January 2012 existed prior to 17 November 2011, that is, at a time when the life policy was still in force. As a consequence, on 27 April 2012, the insured made a claim on the policy for payment of the Terminal illness benefit, in the amount of $4 million.
The insurer, by letter dated 28 May 2012, rejected the claim. In essence, it has based its denial on what it maintains is the proper construction of the terms of the policy document. NMLA maintains that the policy is an occurrence or event based policy and that the insured, on any view of the facts, has failed to satisfy the policy definition of the occurrence necessary to attract cover under the policy. The insurer maintains that all of the defined components of the relevant occurrence must be satisfied during the period the policy was on foot, that is, prior to 17 November 2011 and that the insuring clause in this policy could never have been satisfied during that period but only, at best, at a later time outside the period of cover.
By interlocutory application filed on 12 June 2012 the solicitors for the insured sought an order for the urgent determination of the proceedings. When the application came before a Master it was adjourned to the chamber list and on 6 July 2012 directions were made by a Judge of this court, by consent, designed to permit a hearing and determination of an agreed statement of issues. The matter was adjourned to a listing conference held on 16 July 2012. By this means, the matter came before me on 25 July 2012 for argument on and determination of, in effect, a preliminary point or points pursuant to Supreme Court Rule 6 SCR 211.
At the outset and after hearing from counsel, I indicated that I would embark upon the trial of the matter albeit by hearing argument on the preliminary point or points first as, in effect, the first stage of the hearing of the trial itself. However, during submissions, it became apparent that, in the event that the insured were to succeed with its preliminary point argument, other preliminary issues might also need to be ventilated and perhaps determined at an early stage. I will return to these matters later in these reasons should it become necessary. However, the directions I made at the end of the argument on the preliminary points included directions, by consent, for the filing of written submissions on these issues.
At the end of the argument I also made directions in an effort to ensure that Mr Eden’s evidence, on matters of fact that may become relevant, would be recorded promptly, either by way of affidavit alone, in the event that the insurer were to agree to this course, or, if necessary, following examination and cross-examination in court before me following the resumption of the trial at an early juncture.
Agreed facts
The parties filed a Statement of Agreed Facts in the following terms.
1.On 24 February 2011, the defendant (NMLA) issued Life Insurance Policy No. 500370015 (the Policy) to the plaintiff (Galaxy Homes) insuring the life of Peter Eden (Life Insured).
2.A copy of the Policy wording is Annexure A. The terms of the policy included the following:-
[thereafter various policy provisions are set out].
3.The Terminal Illness Benefit available under the Policy is $4,000,000.
4.By letter dated 11 November 2011, Galaxy Homes asked NMLA to cancel the Policy effective immediately. A copy of this letter is Annexure B.
5.On 17 November 2011, NMLA wrote to Galaxy Homes confirming that the policy was cancelled. A copy of this letter is Annexure C.
6.On 27 April 2012, Galaxy Homes lodged a claim (Claim) for the ‘Terminal Illness Benefit’. A copy of the Claim is Annexure D. In the Claim, the Life Insured stated, amongst other things:
6.1 The exact nature of his illness is ‘Melanoma Cancer Stage 4’; and
6.2 He first attended St Andrews Hospital for this illness on 27 December 2011 and was seen by Dr David Walsh.
7.A medical certificate was included with the Claim which was completed by Dr Walsh. A copy of the medical certificate is Annexure E. In it, amongst other things, Dr Walsh:
7.1gave a diagnosis of Metastatic Melanoma;
7.2said the date of the diagnosis was 28 January 2012; and
7.3gave the opinion that he expected the life insured to live for 6 months.
8.With the Claim form, Galaxy Homes provided a medical report of Dr Walsh dated 20 April 2012. A copy of the medical report is Annexure F. In the report, Dr Walsh stated, among other things:
“The issue you are raising in the letter are essentially two. Peter has Stage IV metastatic melanoma. I believe that this meets the criteria of Terminal Illness. The 5 year survival for all patients with metastatic melanoma is less than 6%. Unfortunately the majority of patients in this situation would be dead within 6-12 months.
The second issue is the onset of what stage Peter would have developed metastatic melanoma. Certainly the tumours that I discovered in his abdominal cavity in December 2011 would have been present for at least 6 months. The symptoms relating to them would have been variable.
In terms of preparing this letter I have contact with Peter and he has confirmed that he had abdominal pain consistent with early but incomplete small bowel obstruction dating back at least to September 2011. At that point he did not make the connection between abdominal pain and his previous subcutaneous melanoma.”
9.The NMLA rejected the Claim by letter dated 28 May 2012. A copy of the said letter is Annexure G. The letter stated, among other things:
“It is clear from the medical evidence that Dr Walsh could only make a certification of your client’s life expectancy after his diagnosis of stage IV Intra-Peritoneal Disease (Metastatic Melanoma) on 28 January 2012. Given the medical evidence and the plan’s terms and conditions stated above, we find that your client is not eligible to make a claim as the plan ended on 17 November 2011, some 2 months before your client was diagnosed with Stage IV Intra-Peritoneal Disease (Metastatic Melanoma) on 28 January 2012 and subsequently some 5 months before your client was certified by Dr Walsh expecting him to live for 6 months on 24 April 2012.”
The statement of agreed facts refers to various annexures. These documents have been included as part of exhibit P1.
Statement of issues
The parties also filed a document headed Agreed Statement of Issues which is in the following terms.
AGREED CHRONOLOGY
1.The Life Insurance Policy No. 500370015 (the Policy) issued by the defendant to the plaintiff on 24 February 2011 on the life of Peter Eden (the Life Insured) was cancelled (and hence brought to an end within the meaning of clause H.1) on 17 November 2011.
2.The Life Insured was first diagnosed with Stage IV metastatic melanoma on 28 January 2012.
3.The plaintiff first made a claim (the Claim) for a Terminal Illness Benefit under clause D.1.2 of the Policy on 27 April 2012.
4.The defendant did not and could not therefore form any opinion prior to 17 November 2011 as to whether the Insured [sic] had an illness that would result in the Insured’s death within 12 months, regardless of any treatment that might be undertaken (within the meaning of “terminal illness” in clause 1.3).
ISSUES TO BE DECIDED BASED ON AGREED CHRONOLOGY
A.Is the Policy capable of responding to the Claim?
B.Does clause H of the Policy necessarily disentitle the plaintiff from making the Claim, alternatively, entitle the defendant to refuse to pay the Claim?
Material before the court
At the hearing of the argument on the two preliminary points set out in the Agreed Statement of Issues, the court had before it the Statement of Agreed Facts including all of the annexures, the Agreed Statement of Issues, exhibit P2 being the first of two pages of the relevant insurance schedule, a chronology handed up by counsel for the plaintiff, the plaintiff’s written summary of argument and the defendant’s written outline of submissions.
Preliminary point A – Is the policy capable of responding to the claim?
The policy document contains the terms and conditions relevant to three separate insurance plans any one or more of which might be taken out by a prospective insured. The three plans relate to a Life insurance benefit, a Total and permanent disability benefit and a Trauma benefit. Both the Total and permanent disability benefit and the Trauma benefit may be taken out as stand‑alone plans or as an option attached to the Life insurance plan.[5] In this case Galaxy took out only the Life insurance benefit plan without the Total and permanent disability option and without the Trauma option.[6]
[5] The Total and permanent disability plan may also be taken out as an option on the Trauma plan.
[6] See Insurance Schedule, exhibit P2, and B.1 of the policy document which provides, inter alia, that “the plan document, the Application form and the Schedule are all evidence of your contract with us”.
The Life insurance plan, in addition to providing for a “life benefit”,[7] provides that, where the life insured suffers a “terminal illness” and the relevant terms of the policy are otherwise satisfied, the insured may ask (and by implication, at least, the insurer will pay) the life benefit “immediately”. In these circumstances payment of the life benefit is brought forward to a time prior to the death of the life insured and becomes payable, it would seem, whether or not the life insured ultimately does die from the “terminal illness”. This Terminal illness benefit is not a stand‑alone cover or benefit under the policy but, rather, the policy works so as to permit early payment of the “life benefit” in appropriate circumstances.
[7] That is, the benefit payable under the policy upon the death of the life insured.
The insuring clause is in the following terms:
D.1    Life insurance
D.1.1   Life insurance benefit
If the person insured dies, we will pay you, the nominated beneficiaries or your estate the life benefit. This amount is paid once only as a lump sum.
D.1.2   Terminal illness benefit
If the person insured has a terminal illness, you may ask us to pay the life benefit immediately. This amount is paid once only as a lump sum.
The sum insured, that is, the “life benefit”, in the present case is $4m and the amount payable in the event that the Terminal illness benefit insuring clause were to be satisfied is that same $4m.
The issue that divides the parties can be stated relatively simply. Did Mr Eden experience[8] a terminal illness, as that term is defined in the policy, during the period of the policy, that is, at some time prior to its cancellation on 17 November 2011. Alternatively, and given the agreed facts, is it simply not possible, as a matter of law and when the definition of terminal illness is applied, for Mr Eden to be found to have experienced a terminal illness during the policy period. Fundamental to the parties’ dispute is the definition of “terminal illness” in the policy. However, there are other provisions in the policy which, in my view, shed light on the manner in which that definition should be construed. The policy wording and, in particular, the inter‑relationship between various of its provisions does present difficult questions of construction.
[8] For the moment this neutral term, that is, a term not found in the policy wording, will be used.
During submissions counsel for each party (as did I) pointed to various hypothetical situations that might be seen to present difficulties when an attempt is made to apply the policy terms. Each counsel asserted that the construction argued for by the other could lead to unexpected and unacceptable anomalies when applied to these hypothetical examples. Of course, the task before the court is to construe the policy insofar as it may be said to apply to the facts before the court. It is not the task of the court to come up with a construction that necessarily works or which would never lead to an anomalous outcome, with respect to all other situations not before the court. Nevertheless, when construing a commercial document, including a policy of insurance, the court should try to focus on giving the whole of the document a reasonable and businesslike operation on the assumption that, at least in the case of ambiguity, it is this that the parties will have intended.
Before identifying provisions that are particularly relevant to the proper construction of the insuring clause, I first set out some basic principles of construction which, again, would appear to be common ground between the parties. The insured, in its written summary of argument, made the following submission which, in broad terms, I accept as being a fair summary of legal principle.
The normal principles applicable to the construction of contracts generally apply to contracts of insurance. Accordingly, it is primarily the objective intention of the parties, as gleaned from the whole of the policy, that prevails.
If there is any ambiguity in the language used in the policy, it is to be construed against the party responsible for drafting the policy – resulting in the adoption of the construction most favourable to the insured.
A court may depart from the strictly literal meaning of a policy in [order] to place upon it the more reasonable or liberal interpretation which is more in accordance with the probable [objective] intention of the parties, if the words would bear that construction.
The insurer, in its written submissions, expressed agreement with these principles but added the following statement from Gleeson CJ in McCann v Switzerland Insurance Australia Ltd:[9]
A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. (Citations omitted).
[9] (2000) 203 CLR 579 at [22]. Fundamental principles of contractual construction have also been stated or summarised in, for example, Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 298-300 (Santow J) and Byrnes v Kendle (2011) 243 CLR 253 at [98]-[101] (Heydon J).

Whilst the insuring clause, set out above, is to be construed in the context of the policy document as a whole, the following provisions are of particular significance to its proper construction.
Definition of “terminal illness”
Terminal illness means any illness which, in our opinion, will result in the death of the person insured within 12 months, regardless of any treatment that might be undertaken. Our decision will be based on medical evidence provided to us by the person insured’s doctor, and any other medical evidence that we may require.
F.     How to make a claim
You must notify us that you wish to make a claim as soon as possible after the person insured suffers, or is diagnosed with, a “claimable event”.
Complete forms and return to AXA[10]
The necessary claim forms will be provided to you as soon as is reasonably possible. Please fully complete the forms and return them to us within six months, or as soon as is reasonably possible, after the person suffers, or is diagnosed with, a “claimable event”.
We can ask for more information
At any time we, or our appointed representatives, may ask the person insured or you for further information. This may include proof of age, information about the person insured’s health, including past medical history, medical records, other insurance claims or any other information which we consider relevant to the claim. You, or the person insured, must give us that information, and, if we request, allow yourselves to be interviewed or examined. We must receive this information before we can finalise a claim. We may choose a medical practitioner to examine the person insured. We will pay the costs of getting any additional medical information or having any examination or interview that we request.
In this clause, “information” includes an authority to obtain any information from and/or provide information to another source.
[10] NMLA is a member of the Global AXA Group.
Definition of “claimable event”
Claimable event means
For Life Insurance Plan:
§   death, or
§   terminal illness.
Another provision of potential significance is the one to be found amongst the terms and conditions relevant to the “Children’s trauma option”[11] which is an option that can be taken out as part of the Life insurance benefit plan. The insuring clause for this option provides:
If a nominated child dies, has a terminal illness or suffers one of the trauma events listed below, we will pay you the benefit. …
The policy does not contain a separate definition of “terminal illness” for this head of optional policy cover and accordingly the general definition of “terminal illness”, as set out above, will apply. In addition, the following provision occurs in the same section under this heading of “Children’s trauma option”:
When will we pay you?
Subject to any qualifying period, we will pay you the amount as soon as possible after we are satisfied that a death, terminal illness or trauma event has occurred. The date the death, terminal illness or trauma event occurs is the date medical evidence, acceptable to us, shows it to have occurred.
[11] Clause D.1.4.3 to be found on p6 of the policy, that is, p11 of exhibit P1.
Given its location in the policy document, this provision setting out the time when an insured can expect payment of any benefit payable with respect to the Children’s trauma option would seem not to apply directly to the main head of cover, that, is the Life insurance benefit or the Terminal illness benefit. Furthermore, there is no similar provision in the policy directed to these primary heads of cover.[12] In this respect, the time when an insured can expect to be paid either the Life insurance benefit (in the case of death) or the Terminal illness benefit is to be deduced from the insuring clause itself and the provisions under “F – How to make a claim”. Nevertheless, as I will develop later in these reasons, this time of payment provision relevant to the Children’s trauma option, in my view, assists in reaching an understanding of the proper construction of the Terminal illness benefit insuring clause.
[12] There is a “When will we pay you?” provision in the policy directed to the Trauma benefit, see p10 of the policy, that is, p15 of exhibit P1. The terms of this provision are materially identical to the provisions set out in the text relevant to the Children’s trauma option.
The principle contentions of each party
At one level, the insurer’s contention is relatively straightforward. NLMA maintains that the policy cover is occurrence or event based, such that the relevant occurrence which would serve to trigger an entitlement to be paid the Terminal illness benefit, must occur within the policy period, in this case, during the period 23 February 2011 to 17 November 2011. The insured does not dispute this. However, NMLA maintains that what must occur within the policy period is a terminal illness as defined in the policy. According to the definition a terminal illness will be established only if the illness is one “which in [the insured’s] opinion, will result in the death of the person insured within 12 months, regardless of any treatment that might be undertaken”. According to NMLA this event will occur only when such an opinion is arrived at.
It is accepted by the insured that for it to succeed it is necessary that the insurer forms the requisite opinion about the illness said to have been experienced by Mr Eden.[13] However, the insurer maintains that the whole of the definition of “terminal illness”, including the reaching of this opinion, must be satisfied at a time prior to the expiration of the policy period. In the present case, at no time was this a possible outcome. Even on the assumption that at some time during the policy period Mr Eden experienced the metastatic melanoma, it was simply impossible for the insured to have satisfied the definition of “terminal illness” during the policy period given that, Mr Eden first attended St Andrews Hospital to be assessed by Mr Walsh on 27 December 2011, was first diagnosed with metastatic melanoma on 28 January 2012, the medical report and medical certificate of Mr Walsh could not become available until after 17 November 2011 and ultimately, a claim was not made by the insured for the payment of the terminal illness benefit until 27 April 2012. In these circumstances it was only possible for the insurer to embark upon the exercise of forming the requisite opinion some five months or more after the expiration of the policy. For this reason NMLA refused at the outset to enter upon the opinion forming exercise.
[13] Subject to such circumstances arising where a court would assume the insurer’s role of forming the opinion.
In arguing this way, the insurer, as is commonly done, has imported the definition of “terminal illness” into the insuring clause, so that the insuring clause would read:
If the person insured has an illness which, in [the insurer’s] opinion, will result in the death of the person insured within 12 months regardless of any treatment that might be undertaken, you may ask us to pay the life benefit immediately …
According to the insurer a plain or literal reading of this requires that the whole of the event including the formation of the insurer’s opinion must occur within the policy period.
The insured, in essence, submitted that such an approach cannot have been the objective intention of the parties to be gleaned from the whole of the policy and that the words of the insuring clause, when read in conjunction with the words of the definition, are capable of giving rise to an alternative construction that is more reasonable and more in accordance with the likely objective intention of the parties. The insured maintains that whilst the definition of “terminal illness” must, ultimately, be satisfied it is only the experiencing of the illness itself which needs to occur within the policy period. The policy is an occurrence or event type policy but the occurrence or the event is simply the experiencing of the illness, albeit the illness must in due course be shown to be of a particular type, that is, one that satisfies the definition of “terminal illness”. However, the process necessarily to be embarked upon in order to determine whether or not the subject illness satisfies the terms of the definition is not, of itself, part of the occurrence or event and does not, itself, have to take place during the policy period.
Each of the competing constructions might be seen to present some difficulty insofar as consistency with other provisions in the policy is concerned and with respect to potentially or arguably anomalous outcomes should other hypothetical fact situations fall to be considered.
In any event, both asserted constructions call for the definition of “terminal illness” to be applied according to its terms. This might present its own difficulties of application once all the facts were to be ascertained, giving rise to such questions as, for example: when is the insurer to undertake the opinion forming exercise? As at what date is the insurer to form its opinion?[14] What evidence is the insurer to rely upon or, more precisely, is there a cut‑off date for the provision of evidence relevant to the opinion? From what date is the insurer required to have formed an opinion as to whether or not the life insured had less than 12 months to live? Given my conclusions with respect to the preliminary points and, as a consequence, the manner by which the parties’ dispute should be resolved hereafter, these matters, to the extent they may arise can and should be left to another day.
[14] These two dates may or may not be the same.
The insured’s construction is to be preferred
I turn now to set out why the insured’s construction of the Terminal illness benefit insuring clause is correct.
In my opinion the two alternative constructions contended for are both open on the wording of the relevant provisions. It cannot be said that the wording of the insuring clause together with the wording of the definition of “terminal illness” is so clear, as to the words, syntax and grammar employed, as to admit of only one construction. However, the insured’s construction offers a more natural and obvious reading of the definition provision. The clause “which, in our opinion …” naturally reads as adjectival – it describes the type of illness that will qualify. It also provides a process necessary to enable that characterisation or typing to be determined. The question provoked by the insuring clause is, as a matter of fact, did the insured have, at any time during the policy period, an illness of this character or type. Neither the insuring clause nor the definition provision expressly says anything about when this factual matter, that is, the requisite character or type of illness needs to have been ascertained.
In any event, there are other provisions in the policy document and aspects of the way by which the policy document operates, or, if given a reasonable and businesslike operation, must have been intended to operate, which lend support to the insured’s construction.
I start with a consideration of the provisions under the heading “F – How to make a claim”. The first paragraph under this heading provides as follows.
You must notify us that you wish to make a claim as soon as possible after the person insured suffers, or is diagnosed with a claimable event.
The provision embraces the wish to make a claim whether it is under the Life insurance plan, the Total and permanent disability insurance plan or the Trauma insurance plan. “Claimable event” is defined in the policy for each of these three purposes.[15] With respect to the life insurance plan, “claimable event” means
§ death, or
§ terminal illness
In this definition the words “terminal illness” are printed in italics indicating (if any additional indication was necessary) that the use of that term in the definition of “claimable event” embraces the definition of “terminal illness” elsewhere in the policy. Accordingly, the first paragraph under the heading “F – How to make a claim” should read, in effect,
You must notify us that you wish to make a claim as soon as possible after the person insured suffers, or is diagnosed with, a “terminal illness” [that is, any illness which, in [the insurer’s] opinion, will result in the death of the person insured within 12 months, regardless of any treatment that might be undertaken].
[15] Page 20 of the policy, that is, p25 of exhibit P1.
Consistency in the use of terminology, particularly defined terms, in a commercial document, including an insurance policy, is highly valued. A presumption to this effect ordinarily will operate, particularly in the case of ambiguity, unless the different contexts plainly require different meanings to be ascribed.[16] During argument it was put to counsel for the insurer that one should expect the meaning given to the term “terminal illness”, where it is employed as part of the definition of “claimable event” for the purpose of the provisions under “F – How to make a claim”, to be the same as the meaning given where it occurs in the insuring clause. Counsel did not demur but rather maintained that the meaning or construction put forward by the insurer applied satisfactorily to both situations notwithstanding that it resulted in a “clumsy” operation of the provisions under “F – How to make a claim”.
[16] See the discussion in Lewison and Hughes The Interpretation of Contracts in Australia 2012, Thomson Reuters at 284 to 288 and the authorities there cited.
In my view, the approach advocated by the insurer results in, not just a clumsy operation of these provisions but, for all practical purposes, an unworkable operation and one which a reasonable and businesslike reading of the policy does not support.
The insurer’s argument here, if correct, necessitates that a significant process will have been undertaken between the parties, essentially unregulated by the terms of the policy, prior to any action taken as anticipated by the provisions under the heading “F – How to make a claim”. On NMLA’s argument the following would need to occur.
(i)The insured will have indicated to the insurer, in some way, its belief that the life insured has a terminal illness as defined.
(ii)Steps thereupon will need to be taken to enable the insurer to consider and form an opinion to the effect that the illness will result in the death of the person insured within 12 months regardless of any treatment that might be undertaken. In other words, it will be necessary, as a first step, for the insured to establish that the life insured has suffered or been diagnosed with a “claimable event”, that is, in the present case, a “terminal illness” including the obtaining of the requisite opinion.
(iii)It is only once the suffering or diagnosis of a terminal illness has been established that the provisions of “F – How to make a claim” fall to be applied, including the requirement that the insured notify that it wishes to “make a claim as soon as possible thereafter”.
(iv)Upon such notification the insurer will provide the necessary claim forms “as soon as is reasonably possible”.
(v)Upon receipt of the claim forms the insured is to complete them and return them to the insurer “within six months, or as soon as is reasonably possible, after the person insured suffers, or is diagnosed with a claimable event”.
(vi)At any time the insurer can ask the person insured or the insured for further information.
As far as (vi) is concerned, the type of information, given by way of example, is that typically sought by an insurer in order to ensure that there has been no misrepresentation or non‑disclosure at the time the policy was taken out, no pre‑existing medical condition that might inform a contractual right to refuse the claim and information generally which might bear upon any condition precedent to the making of a claim under the policy. However, in addition, the insurer is entitled to request that the life insured be interviewed or examined and may choose a medical practitioner to examine the life insured. Ordinarily, this latter type of information will be sought in order to assist an insurer to assess whether or not the claimed insured event has been established, in this case, the nature of and extent of the alleged “terminal illness”.
In short, the provisions of “F – How to make a claim” include practical steps that, ordinarily, would be taken by a prudent insurer in order to assist it to come to the opinion envisaged by the definition of “terminal illness”, and thereby, with respect to the policy provisions presently under consideration, ascertain the existence of a “claimable event”. It makes little sense for this process to be undertaken after the insurer has already formed the requisite opinion. Indeed, on the assumption that the insurer has already formed a favourable opinion ((i) and (ii) above) and subject to compliance with all other policy requirements, the expectation is that the cheque would be in the mail almost immediately; there would be no need for any notification of a wish to make a claim. So much is apparent from the insuring clause (D.1.2) itself.
If the person insured has a terminal illness, you may ask us to pay the life benefit immediately.
In my view, the notion of “claimable event”, given that it embraces (indeed, as far as the Terminal illness benefit is concerned, corresponds with) the notion of “terminal illness”, must be given a more truncated meaning than that propounded by the insurer, at least for the purposes of the provisions of “F – How to make a claim”.
These provisions, applied in the way the insurer would apply them, appear to make sense in the context of a claim under the Trauma insurance plan because all that an insured must demonstrate, if it wishes to make a claim, is the suffering or diagnosis of a “trauma event”, that is one of certain specified illnesses and medical conditions. There also does not appear to be any difficulty with a literal application of the provisions to the Total and permanent disability plan. In this latter case, whereas the definition of total and permanent disability and, ultimately, the question of whether or not cover will attach turns in part on the forming of an opinion by the insurer, the notion of “claimable event” for the purposes of initiating a claim pursuant to the “F – How to make a claim” provisions, arguably, does not require this opinion to have been reached.
However, and in any event, the fact that the “F – How to make a claim” provisions might be seen to work sensibly when read literally in their application to the Trauma insurance plan and the Total and permanent disability insurance plan does not relieve the court from coming to a reasonable and businesslike construction of the provisions so as to enable them to work practically and sensibly, not just in the context of those two plans but also in the context of the Life insurance and specifically, Terminal illness benefit plan. The virtue of the insured’s construction is that it works equally well in the context of all three plans.
The insured’s construction would suggest, in my view correctly, that the opening paragraph of the “F – How to make a claim” provisions must be construed so as to read:
You must notify us that you wish to make a claim as soon as possible after the person insured suffers from or is diagnosed with [an illness that the insured asserts or claims ultimately will be shown to be a “terminal illness” and thereby] a “claimable event”.
If this opening paragraph is read in this way all of the succeeding steps (iii) to (vi) above, make practical sense and conform to what ordinarily would be expected to occur should such a claim under the policy be made.
Similar considerations arise when the provision under the heading “When will we pay you?” under the Children’s trauma option section is examined. It is helpful to set out that provision again.
Subject to any qualifying period, we will pay you the amount as soon as possible after we are satisfied that a death, terminal illness or trauma event has occurred. The date that death, terminal illness or trauma event occurs is the date medical evidence, acceptable to us shows it to have occurred.
The first part of this provision can be read consistently with the insurer’s argument; payment will be made as soon as possible after the insurer is satisfied that a “terminal illness” has occurred. On the insurer’s argument, a “terminal illness” will not have occurred until the definition has been satisfied including the fact of the formation by the insurer of the requisite opinion. Assuming the requisite opinion were to be favourable, payment would be made as soon as possible thereafter.

However, to slavishly import the definition of “terminal illness” into the first sentence of this provision in this way, runs counter to the expressly agreed date of occurrence of the “terminal illness” as provided for in the second sentence of that provision. At least for the purposes of the Children’s trauma option, the parties have agreed that the date of occurrence of the terminal illness, the subject of the claim, is the date that the medical evidence (albeit being evidence, in time, found acceptable to the insurer) shows the terminal illness to have occurred. Plainly, this would be a date different from any date on which the insurer’s opinion is, in fact, reached in accordance with the definition of “terminal illness”. This suggests, again, that where the term “terminal illness” is used on two occasions in the “When will we pay you?” provision, whilst the ultimate obtaining of the requisite opinion is a condition precedent to recovery under the policy and the timing of payment under the policy, the date when the requisite opinion is formed is not, of itself, significant to the entitlement to make a claim.
Under the Children’s trauma option the insuring clause reads as follows.
If a nominated child dies, has a terminal illness or suffers one of the trauma events listed below, we will pay you the benefit. …
This is also an occurrence or event based insuring clause. On the application of ordinary canons of construction, the insured would need to demonstrate that the nominated child “has a terminal illness” within the period of the policy in question. In this case, it has been specifically provided that the date of the occurrence of any such “terminal illness” is the date it occurred as a matter of fact, based on the medical evidence, not the date that the, albeit necessary, insurer’s opinion was formed so as to satisfy the definition of “terminal illness”.
The Terminal illness benefit insuring clause under which the present insured has claimed is in similar terms.
If the person insured has a terminal illness, you may ask us to pay the life benefit immediately.
However, as has already been noted, there is no analogous “When we will pay you?” clause directly applicable to the Terminal illness benefit policy provisions. It might be argued that the parties, by this omission, have indicated that a different approach is to apply and one that gives full rein to the definition of terminal illness, construed in the manner propounded by the insurer. In my view, this is much too subtle and gives too much credit to the policy drafter for what should be seen as a very obscurely drafted outcome. It is possible that such a “When will we pay you?” provision was not included in the Terminal illness benefit provisions because it was overlooked by the drafter or thought to be otiose or unnecessary. I am in no position to make any findings in this respect and do not do so. Nevertheless, I am not persuaded that the absence of such a “When will we pay you?” clause lends any significant support to the insurer’s argument. On the contrary, its inclusion elsewhere shows that the parties by their agreement to the policy terms as a whole were alive to the practical difficulty caused by the insurer’s approach.
My strong inclination to this point is that the term “terminal illness” as used in the insuring clause for the Terminal illness benefit should be construed consistently with the way it has been used, in my opinion, in the “F – How to make a claim” provisions. As such, all that the insured would need to demonstrate, in this respect, is that Mr Eden, at some time during the period of the policy pursuant to which the claim is made, “[had] an illness” which illness ultimately can be shown to satisfy the definition of “terminal illness”, incorporating as it does the formation of the requisite opinion by the insurer.[17]
[17] The use of the word “has” in the insuring clause presents its own question of construction dealt with later in these reasons.
There are other arguments that favour this construction. The insurer’s construction would ensure, as a practical matter, that an insured who takes out the Life benefit cover for a 12 month period would receive significantly less than 12 months cover with respect to the Terminal illness benefit. The necessary steps involved in obtaining medical assistance with respect to symptoms first appearing during a policy period, obtaining a medical diagnosis, and obtaining any additional expert medical evidence and opinion sufficient to satisfy the insurer and generate the requisite opinion will take time, perhaps months. Even then the insurer would have the right to make its own enquiries.
To some degree these matters appear to be regulated by the “F – How to make a claim” provisions; the insurer must supply the necessary claim forms “as soon as is reasonably possible,” although the insured is only required to complete and return the claim forms “within six months, or as soon as is reasonably possible [after suffering or being diagnosed with the claimable event]”. However, on the insurer’s argument these time frames do not apply to the opinion forming exercise but only once a claimable event (terminal illness) has been found by the insurer. The time frames involved in the opinion forming exercise itself are unregulated by the policy terms, although obligations to act reasonably and in good faith almost certainly would apply.[18]
[18] And there may be scope in certain circumstances for s54 of the Insurance Contracts Act 1984 (Cth) to provide relief to an insured.
In any event, enough has been said to demonstrate that on either of the propounded constructions the delay between first symptomology and opinion is likely to be relatively lengthy and, on the insurer’s case, will significantly reduce the effective period of cover under a 12 month policy term.
Ordinarily, this should not present a problem because typically a life insurance policy will be renewed from year to year. As such, a claim made during one policy year but processed and determined in a later policy year can be commonplace.[19] But that does not mean that a life insurance policy should not be capable of operating in a reasonable and businesslike manner simply because it has been in place only for one policy term or period. In any event, as counsel for the insured submitted, the same problem will arise if symptoms are first suffered during the last policy year of a life insurance plan. None of this is to say that the period of the cover for terminal illness can never, by agreement, be limited in this way.
[19] Counsel for the insured submitted that even this situation was problematic on the insurer’s case because of the provisions under “E – When we will not pay”, dealing with pre-existing medical conditions (E.1). The proper construction of these provisions in the context of the present argument was canvassed to some degree during submissions. It is not necessary that I finally determine this issue. However, my inclination would be to reject the insured’s submission here. I incline to the view, that these provisions, properly construed (together with such amelioration as s54 of the Insurance Contracts Act might offer from time to time) would not necessarily prevent a “claim” in one policy year to be determined during a succeeding policy year, notwithstanding the insurer’s propounded construction of the Terminal illness benefit insuring clause.
In a sense, the argument just canvassed is circular. As the insurer no doubt would say, an insured always has terminal illness cover for the full policy period taken out provided that the proper definition of the insured event covered by the policy is adverted to. This may be so but, in my view, the practical outcome from this analysis is so startling as to require clear expression in the policy. In this respect, the insured’s criticism of the insurer’s approach could go further. An insured, even with the benefit of timely legal advice,[20] could be forgiven for looking at “F – How to make a claim” and thinking that they have up to six months to lodge the claim. The provisions under “F – How to make a claim” if construed in a manner consistent with the insurer’s argument, set a trap for the unwary.
[20] And many life policy insureds are likely to claim first and only seek legal advice after a rejection.
A number of authorities in the area of total and permanent disablement insurance have dealt with an analogous requirement; often the establishment of total and permanent disability will turn on, inter alia, the formation by the insurer of an opinion. The insuring clauses and definition provisions, as considered in these authorities, are in varying terms and as such are of little direct assistance with the construction questions in the present case. Furthermore, none of the authorities that have come to my attention deal with the context of a single policy period. Whilst it is clear from the authorities in this area that the reaching of the requisite opinion by an insurer can be essential[21] to a successful claim for total and permanent disability cover, none of the authorities have needed to directly consider whether or not it is necessary that the opinion be formed during the same policy period during which the total and permanent disability is first suffered as a matter of fact.
[21] Subject to questions of review and court challenge.
There are a number of authorities in this area which have held or approved of the proposition that where an insurer is found to have failed to act reasonably or in good faith when reaching an opinion, rather than sending the matter back to the insurer, the court will step in and undertake the opinion forming exercise.[22] Inevitably, this process would take significant time, particularly if appeal rights were to be exercised, but also even if the insurer were to be required to revisit the exercise. Often, (perhaps subject to how early in a policy term the process starts) this would prevent a complete resolution of the matter occurring within a single (and only) policy period. This also suggests that the ultimate formulation of the requisite opinion is to be seen as part of the definition of terminal illness in the sense of a condition precedent to recovery but that the time at which the opinion is formed is not essential to recovery.
[22] See, for example, Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWSC 945; affirmed on appeal, Hannover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Ins Cas 90-123; Halloran v Harwood Nominees Pty Ltd [2007] NSWSC 913; Oberlechner v Watson Wyatt Superannuation Pty Ltd (2008) 15 ANZ Ins Cas 90-134; Dargan v United Super Pty Ltd [2011] NSWSC 1316; Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113; McArthur v Mercantile Mutual Life Insurance Co Ltd [2002] 2 Qd R 197 and Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175. In the case of a trustee’s discretionary opinion different considerations can apply.
The analysis put forward to this point is consistent with what I perceive to be the purpose or philosophy underpinning the opinion forming exercise. The formation of the opinion is not an end in itself but a means agreed upon by the parties for ascertaining the facts. The parties could have agreed upon any number of fact finding mechanisms. They chose that of the insurer’s opinion (as to the essential finding of fact) provided that the insurer acts reasonably and in good faith when undertaking the process. In Sayseng v Kellogg Superannuation Pty Ltd and Anor[23] Bryson J considered an insured’s challenge to the opinion of an insurer on the question of whether or not the insured was totally and permanently disabled.[24] After referring to the position relating to the discretionary decision making of trustees his Honour observed as follows.[25]
The grounds upon which the opinion of an insurer may be challenged are generally similar but the consequences of a successful challenge are more radical. The Court regards the reference to the insurer’s opinion, in the context of a contract of insurance, as means adopted by the parties for ascertainment of the facts to which the opinion relates: contractual entitlement depends on the facts, not, primarily, on the opinion which is the means of ascertaining them, and if the insurer has actually failed to form the opinion, or has constructively failed by acting on some wrong basis, the Court proceeds to determine the facts. (Emphasis supplied).
[23] [2003] NSWSC 945.
[24] His Honour’s decision was affirmed on appeal with his Honour’s reasoning not materially departed from, Hannover Life Re of Australasian v Sayseng [2005] NSWCA 214.
[25] At [77].
I have to this point addressed and rejected the insurer’s principal contentions. However, I should say something about some of the other matters dealt with in its written outline. The insurer’s argument for its propounded construction is encapsulated in [14] to [27] of its written outline as developed by counsel during argument. Paragraph [16] states the following.
The event which triggers liability to pay the terminal illness benefit under the policy is NMLA forming the opinion that the life insured has an illness which will result in the death of the life insured, under the policy, terminal illness has its own special meaning which is the meaning beyond what might be called the medical meaning …
Thereafter in a number of the paragraphs in the insurer’s submission this proposition relied upon is asserted but with little textual justification provided for it.[26]
[26] For example, “Terminal illness arises under the policy when the insurer forms the opinion” (paragraph [17]), “[Galaxy’s argument] misconceives the event the parties have contractually agreed entitles Galaxy to receive the benefit, namely, the formation of the requisite opinion as to terminal illness” (paragraph [20]).
In my opinion, the insurer places more reliance, in the present context, on the decision and reasoning of Franklin J in Heitman v Guardian Assurance Co Ltd[27] than that decision can bear. Heitman is not authority for the proposition that the insurer’s opinion in that case had to be reached at or before any particular time or during a particular policy period in order for the claim to qualify. Heitman stands for the proposition (among others) that according to the definition of total and permanent disability before the court, the insuring clause was not satisfied unless and until the opinion provided for had either been formed or its formulation unreasonably withheld. These are two different concepts.
[27] (1992) 7 ANZ Ins Cases 61-107, and see [18] of the insurer’s written outline.
The insurer also submitted that the insured’s construction would permit, in effect, a back door access[28] to the Trauma insurance plan which had not been taken out by the insured. I will assume for present purposes that the suffering of metastatic cancer simpliciter would qualify as a trauma event under the policy had the Trauma insurance plan been taken out. The fact that an insured might be entitled to claim and recover under one head of policy cover does not necessarily mean that it should not be entitled to recover under another head of cover if the policy terms otherwise would permit it to do so. Ultimately, it will be a question of construction (ascertainment of the parties’ agreement) as to whether both or, if not, which heads of cover will apply to given circumstances. Indeed, the policy document in the present case seeks to expressly address this possibility in various situations.[29] In any event, the insurer’s argument here mistakes the reality. It is not the case of a trauma event (the metastatic cancer simpliciter) attracting cover under the policy notwithstanding that the Trauma insurance plan had not been taken out. The trauma event will still only attract cover, on the insured’s case, if it satisfies the additional requirement called for by the definition of terminal illness, namely, the existence of the requisite opinion. Here, the insurer has, implicitly, assumed the correctness of its construction as the basis for this argument in support of it.
[28] This is not the expression used by the insurer but my summary of the argument.
[29] See, for example, the second dot point under “D.2 TPD” on p7 of the policy, that is, p12, of P1; the provision immediately under the heading “If you are paid an amount under this clause, what happens to the balance of the benefit?” on p9 of the policy, that is, p14 of P1; the provision under the heading “If you are paid a TPD benefit” on the same page of the policy; and the last paragraph under the heading “If you are paid a trauma benefit” on the same page of the policy.
The insurer pointed to a perceived anomaly should the insured’s argument be accepted.[30] The insurer appears to argue here that a necessary consequence of the insured’s position is that should death occur many years after the lapsing or cancellation of the policy, an insured would be entitled to the “life benefit” provided only that during the currency of an earlier policy the insured life suffered symptoms of the condition that ultimately caused the death some years later. This reasoning does not follow from the insured’s position. For the life benefit to become payable the insured would have to show that the death, the insured event, occurred at some time during an extant policy period or that the definition of terminal illness, including by means of the forming of the requisite opinion, had been satisfied with respect to an extant policy period.
[30] See [24]-[25] of its outline. The opening sentence to [24] misstates the insured’s position – an inauspicious start to the launching of a counter argument. It is not the insured’s position that it is entitled to the life benefit merely because Mr Eden apparently had symptoms of the cancer during the currency of the policy.
In [26] and [27] of its outline the insurer raises the problem of the date from which the 12 months prognostication by the insurer (when forming its opinion) is to commence. There is no doubt that this raises a nice point of construction. However, this difficulty, in one form or another, arises whichever construction were to be adopted. Furthermore, in the last sentence of [27], the insurer again assumes the correctness of its propounded construction in order to explain the asserted anomaly.
In the amended form of the insurer’s further written submissions, filed on 9 August 2012, my attention was drawn to Bergin J’s decision in George Maurice Norman Farkas v Northcity Financial Services Pty Ltd[31] and to the Victorian Court of Appeal decision in Larwint Pty Ltd v Norwich Union Life Australia Ltd.[32]I have not found either case to be of particular assistance on the questions of policy construction before me.
[31] [2004] NSWSC 206 affirmed in part and reversed in part on appeal, sub nom, Tower Australia Ltd v Farkas (2005) 64 NSWLR 253.
[32] (2007) 15 VR 371.
In Farkas, Bergin J when construing the policy provisions, in that case, dealing with the “critical illness” benefit, found (by way of obiter dictum) that the “occurrence” of cancer was synonymous with its diagnosis.[33]
[33] See [88]-[92]. The Court of appeal, at [15], noted that this was “common ground” on the appeal before it without any apparent animadversion. However, the point was not raised nor argued on the appeal).
The policy before Bergin J was in terms, as to structure and terminology used, very different from the terms of the present policy. In addition, her Honour was considering the question of whether, in effect, “occurrence” required or imported the notion of diagnosis in the context of a waiting period provision, that is, an exclusion from cover. I have not formed a final view as to whether or not I would come to the same construction of the policy terms before Bergin J as her Honour reached. My initial reaction is that, with respect, there is much to be said for the submission put in opposition to the conclusion reached by her Honour.

Furthermore, in the present case, there is no mention of the word “diagnosis” or “occurrence” in either the insuring clause, where the operative word is “has” nor in the definition of terminal illness. However, the drafter of the policy has specifically adverted to and used the work “diagnosis” in the context of the “F – How to make a claim” provisions and by implication has contemplated that an insured might suffer and be diagnosed at different times.
As far as Larwint is concerned, the decision would seem to have turned entirely on the requirement in the definition of “heart attack” that it be established by reference to ECG evidence and is distinguishable.
Preliminary point B – Does clause H of the policy necessarily disentitle the plaintiff from making the claim, alternatively, entitle the defendant to refuse to pay the claim?
The insurer has also placed reliance on the third paragraph under “H.1 Ending the plan” which provides as follows.
When the plan ends, you can no longer make a claim under the plan and we do not have to pay you any benefits.
In its written outline[34] the insurer submitted that the provision precludes the insured from bringing its claim after the plan (in this case, the single policy period from 24 February 2011 to 17 November 2011) had ended. Read literally, this paragraph appears to be to the effect that the insured’s claim to be paid the Terminal illness benefit, presented on 27 April 2012 a little more than five months after the plan ended, was made too late. Such a literal reading does not provide a reasonable and businesslike construction when considered in the context of the policy as a whole. In my view, this provision is not to be construed in this way.
[34] Paragraph [29].
The paragraph in question also provides that “when the plan ends … we do not have to pay you any benefits”. Read literally this would apply to the situation of a valid claim made and accepted but, as yet, unpaid during the policy period. If the policy were not renewed, the insurer could point to the H.1 provision and refuse to pay. In addition, the policy also provides as follows, under the heading “H.2 When the plan will end”.
The plan automatically ends as soon as one of the following happens:
§ …, or
§ The person insured dies, or
§ …; or
§ … .
Read and applied literally to this circumstance, the third paragraph under H.1 would preclude any claim being made for the Life benefit consequent on death of the life insured and would relieve the insurer of any obligation to pay the Life benefit.
Neither of these possible outcomes is appealing[35] and they serve to suggest that something other than a strictly literal construction was intended by the parties. I accept the insured’s submission, to the effect, that the third paragraph under H.1 is an attempted plain English statement to the effect that after the plan has ended the cover provided by the insurance ceases. Save for any accrued claim, that is, based on an event which satisfies the requirements of the relevant insuring clause and having occurred whilst the plan was on foot, coverage under the plan will have ended.
[35] The latter entirely negates or undermines the parties’ bargain with respect to Life benefit (death) cover.
If I am wrong, with respect to this construction of the H.1 provision, the policy would become, by implication, one requiring both the occurrence and the claim or notification to take place within the policy period. I have already, in effect, rejected a construction of the Terminal illness benefit insurance clause which seems to characterise the policy in this way. To read the third paragraph under H.1 literally in this way would run directly counter to what I have found to be the proper construction of the insuring clause. An alternative approach would be to see this provision as giving rise to an implied condition precedent to a right of recovery for a valid claim. In other words, the provision has no bearing on the content of the insured event itself but gives rise to an obligation to lodge the claim before the plan ends. I would reject such a construction as well. The provision is not clearly structured as a condition precedent to recovery nor located where one would expect such a condition to be. It would operate, in this respect, quite inconsistently with the provisions under “F How to make a claim” which contemplates a period of at least six months between the occurrence of the claimable event and the completion and return of the claim forms, without any hint under F that the claim forms must, in any event, be lodged before ending the plan.
Finally, even if the third paragraph under H.1 did provide for a condition precedent to make a claim or to recover (which, in my view, is not the case) the question would then arise as to whether the insured could establish a factual basis that would entitle it to obtain relief pursuant to s54 of the Insurance Contracts Act.
Conclusion with respect to the two preliminary issues
Given the view I have reached as to the proper construction of the Terminal illness benefit insuring clause it is not necessary for me to address the alternative argument put by the insured in reliance on s54 of the Insurance Contracts Act. I am able to answer the two preliminary issues raised on the basis of the Statement of Agreed Facts. It is proper that I do so. Having found in favour of the insured in this respect, the matter cannot proceed to the outstanding factual enquiry (involving the formation or not of the requisite opinion) until it is determined whether that task is to be performed by the court as part of a trial process or remitted to the insurer for it to fulfil its contractual obligations. The parties have asked that I rule on this issue as well.
The Terminal illness benefit insuring clause is satisfied where an insured establishes that the life insured “has” an illness during the policy period which illness satisfies the definition of terminal illness, that is, any illness which in [the insurer’s] opinion will result in the death of the life insured within 12 months regardless of any treatment that might be undertaken.
The word “has” should be given its ordinary meaning which, in this context, is to experience, or to suffer, or to be subjected to, a specified state.[36]
[36] See, for example, the Australian Concise Oxford Dictionary 1987, 4^th meaning under “have”.
Ultimately, whether a person “has an illness” at a particular time or during a particular period of time will be a matter for expert medical evidence. In this case any evidence given by Mr Eden as to symptoms, if any, experienced during the policy period, cannot of itself be determinative but may, if accepted, be relevant to any medical opinion (diagnosis) reached as to whether or not, during the period of cover, he “[had] metastatic melanoma”. It also may be relevant to the formation or not of the opinion necessary to the characterisation of any such metastatic melanoma as a terminal illness.
In order to satisfy the insuring clause (and definition) it is sufficient that the life insured “has”, during the policy period, an illness, ultimately found to be a terminal illness. It is not necessary for any formal diagnosis to have been arrived at, or any medical opinion to have been obtained, or any claim to have been made, or for the insurer’s opinion to have been reached, during the policy period itself.
However, whether or not, in these or other respects, the parties have complied with their obligations under the policy terms or, if not, the potential for s54 of the Insurance Contracts Act to relieve an insured from any such failure are questions of mixed fact and law which, if they arise, should be dealt with during a later stage of this trial.
The answer to the first agreed issue for determination is, yes. The answer to each of the alternatives in the second agreed issue is, no.
Should the matter now be remitted to the insurer?
The essence of the insured’s complaint is that the insurer has failed from the outset to apply the definition of terminal illness, as contained in the policy, to the claim as made. In such a situation the insurer submits that the matter should be referred back to the insurer so that it can undertake the opinion forming exercise in accordance with its contractual obligation as now understood in the light of these reasons. The insured submits that the opinion forming exercise should now be undertaken by the court as part of a trial process on the basis that the insurer has breached the policy and thereby forfeited its contractual entitlement to undertake that exercise.
The weight of authority in this country,[37] concerning total and permanent disability insuring provisions which include as an element the formation of an opinion by the insurer as to relevant facts, is to the effect that where the insurer has failed to observe its contractual obligations in this respect, the court will proceed to decide for itself whether the requisite factual state of affairs exists. I accept that the form of the total and permanent disability provision (and relevant definition) in each of the various policies considered in these authorities is different from the insuring clause and relevant definition applicable in the present case. Nevertheless, the conceptual underpinning is the same. Typically, a component of the definition of total and permanent disability requires the insurer to have formed an opinion in terms, along the lines,
that, as a result of that injury or illness, the insured person is disabled or incapacitated to such an extent as to render the insured person likely never to be engaged in any gainful occupation…
In my view, the authorities in the area of total and permanent disability insurance are of significant assistance in the present case.
[37] See, for example, the authorities cited at fn 22 above.
The most detailed discussion of underlying principle is still to be found in the Queensland Court of Appeal decision of McArthur v Mercantile Mutual Life Insurance Co Ltd.[38] The majority judgment was given by Muir J (as his Honour then was and with whom McMurdo P agreed). McPherson JA, whilst not dissenting in the result, provided separate reasons in which he undertook a slightly different analysis.
[38] [2002] 2 Qd R 197.
In McArthur a claim was rejected by the insurer on the ground that it was not satisfied that the insured had become totally and permanently disabled within the meaning of that expression in the policy. In essence, the policy required two things; first, that an insured had not been able to work in his or her occupation for six months and second, the formation of an opinion by the insurer to the effect that the insured was likely never to work again.
The insured sued in the District Court of Queensland claiming payment of the insured sum of $80,000 or, in the alternative, damages for breach of contract in the amount of $120,000.[39] The trial judge held that, in forming its opinion, the insurer had failed to apply the appropriate test and as a result no valid opinion came into effect. There was no appeal from that determination. At a subsequent hearing, the trial judge found on the evidence available at the time of the hearing, as a factual matter, that the insured was not totally and permanently disabled within the policy definition. The appeal to the Queensland Court of Appeal concerned two questions. The first was, what is the courts role, if any, where, as a result of wrongful conduct on the part of an insurer, the opinion which is a condition precedent to the insurer’s obligation to pay, is ineffective? The second and related question was, whether it was permissible for the court to have regard to evidence which came into existence after the date of the invalid determination by the insurer.
[39] It would appear that the alternative claim for damages included a claim for compound interest.
As far as the first question was concerned, Muir J (as did McPherson JA) analysed as a matter of principle the legal effect of an insurer’s failure, in this respect, to comply with its obligations in accordance with the policy terms. Muir J said this.[40]
Where a party to a contract is in breach of a contractual obligation the innocent party’s remedy, absent the availability of specific performance, and putting aside the question of whether the breach is such as to give the innocent party a right to terminate, is to sue for damages for breach of contract. In this case, the insurer having been in breach of a contractual obligation, an orthodox contractual analysis would suggest that the appellant’s remedy was to sue for damages for breach of contract. That is what the appellant did, at least in the alternative. I note that no issue arose on the appeal concerning the appellant’s status as a contracting party or about his standing to sue.
Another possibility is that the innocent party may have a claim in debt if the amount claimed is ascertained and is payable under the terms of the contract. A difficulty with regarding the appellant’s claim as a claim for a debt is that the formation of the respondent’s opinion is a precondition of the right to payment under the policy. Until the respondent’s opinion has been found to have miscarried and until findings are made as to total and permanent disability, no sum can be due to the appellant.
Damages for breach of contract are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed. If the contract had been performed in this case, the respondent would have formed the subject opinion honestly, bona fide, and reasonably. Continuing this analysis, if an insurer acting reasonably would have rejected the claim, the appellant would be unable to demonstrate loss. On the other hand, if it is concluded that an insurer acting reasonably would have accepted the claim, the appellant would be entitled to the payment of the sum stipulated by the policy to be payable in the event of total and permanent disability. There are, however, possible complicating factors. In some circumstances, it may be that an insurer acting reasonably may deem it advisable to seek further evidence or even to postpone a determination pending the resolution of various matters. (Citations omitted).
[40] At [58]-[60].
I accept this as an accurate statement of general principle. Nevertheless, the way in which this statement of principle might apply to a particular situation will depend on the terms of the policy in question.
Muir J went on to discuss, in some detail, various other authorities which had considered the first question, that is the role of the court, in circumstances where an insurer had failed to properly observe the policy terms in either forming or not forming the requisite opinion.[41] His Honour commenced this discussion with the following observations.[42]
In a number of comparatively recent decisions concerning the failure by the insurer to properly form an opinion which is a pre-condition to the insurer’s obligation to make payment under the policy, however, courts have determined disability as a question of fact and have proceeded to order payment of the sum payable under the policy in the event of disability.
His Honour concluded his discussion of earlier authority relevant to this issue in the following terms.[43]
There is thus a substantial body of authority in support of the conclusion that where, as in this case, payment is dependent on the formation by a party to a contract of an opinion as to the existence of a state of affairs and the opinion is not duly formed through the fault of that party, the court may proceed to decide, as a question of fact, whether such state of affairs exists. Having made a determination in favour of the insured the court may then order payment of the sum which would have been payable had the insurer’s opinion been duly formed in favour of the insured. That is the course the primary judge took in this case and, not without some misgivings, I accept that it was correct. …
[41] At [63]-[71].
[42] At [62].
[43] At [72].
Bryson J in Sayseng v Kellog Superannuation Pty Ltd & Anor[44] also reviewed a number of relevant authorities. His Honour summarised the principles in the following passage.[45]
§ There was an implied obligation on [the insurer] to consider and determine whether it should form an opinion on the matter which was a condition of its own liability.
§ That obligation involved consideration and determination of the correct question.
§ [The insurer] was under a duty of good faith and fair dealing which required it to have due regard for the interest of [the insured]… .
§ [The insurer] was obliged to act reasonably in considering and determining what its opinion was.
§ If the view taken by [the insurer] can be shown to have been unreasonable on the material before [the insurer] its decision can be successfully attacked.
§ If [the insurer’s] decision is successfully attacked, the matter upon which [the insurer’s] opinion was required becomes one for determination by the court.
[44] [2003] NSWSC 945 at [81]-[85].
[45] At [82].
None of the authorities to which I have been referred is binding on this court. Furthermore, these issues of principle must be considered and applied in the context of the terms of the particular insurance policy and the agreed facts before the court. Nevertheless, I find the reasoning and application of principle in these authorities to be highly persuasive and I see no reason why it should not be applied in the circumstances before the court. On the agreed facts, the insurer has refused to enter upon the opinion forming exercise as a result of its construction of the policy provisions. I have found the insurer to be in error here. As such there has been a rejection of the insured’s claim for wrong reasons. Whether or not the insurer’s rejection of the claim might ultimately be justified on the facts is another question and to be left for another day. Nevertheless, the insurer has breached its contract with the insured and, ordinarily, on the strength of the authorities I have just considered, it should follow that it now falls to the court to decide, as a question of fact, whether during the period of time that the policy was in force the insured “had” an illness that satisfied the requirements of “terminal illness” as defined.
I return to the proposition advanced by Bryson J in Sayseng,[46] quoted earlier in these reasons.[47]
[C]ontractual entitlement depends on the facts, not, primarily, on the opinion which is the means of ascertaining them, and if the insurer has actually failed to form the opinion, or has constructively failed by acting on some wrong basis, the court proceeds to determine the facts.” (Emphasis supplied).
[46] [2003] NSWSC 945 at [77].
[47] At [51] above.
Another approach to the problem, as identified in some of the authorities, is to the effect that the formation of the opinion by the insurer, as required by the policy, is a condition precedent to the insured’s entitlement and one intended to protect the insurer. As such, if the insurer were to fail to act fairly and reasonably in forming the opinion “the insurer in effect loses the benefit of that condition, and it becomes appropriate for the court to consider the matter itself”.[48] The conclusion that an insurer might be precluded from having an opportunity to form the opinion is said to follow from the principle that a party to a contract cannot insist on a condition if it is responsible for the non-fulfilment of that condition.[49]
[48] Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175 at 78,001 (Hodgson J).
[49] See, for example, New Zealand Shipping Co v Societe Des Ateliers Et Chantiers De France [1919] AC 1 at 6 (Lord Finlay LC); Butcher v Port [1985] 1 NZLR 41 at 496-497 (Cooke J) and at 505 (Eichelbaum J) McArthur at [16]-[20] (McPherson JA) and at [61]-[72] (Muir J) and Wyllie v National Mutual Life Association of Australasia Ltd & Ors [1997] NSWSC 146.

Before reaching any final conclusion on this issue, the present state of the parties’ pleadings should be considered. The insured, in its second statement of claim, has pleaded the existence of the policy, its cancellation, certain critical terms of the policy namely the insuring clause and the definition of “terminal illness” together with the allegations that the life insured is Mr Eden, that the benefit payable is $4 million, that Mr Eden suffered a terminal illness during the currency of the policy and that the insured, by letter dated 27 April 2012, claimed payment of the $4 million insurance benefit. Apart from the allegation that Mr Eden suffered a terminal illness during the currency of the policy, none of these matters is in dispute. The insured then pleads (paragraph 8) that the insurer rejected the claim “on the erroneous basis that Peter Eden did not suffer a terminal illness during the currency of the policy.” The relief sought by the insured is in the following terms.
(i)      A declaration that the claim is payable pursuant to the policy.
(ii)     Payment of $4 million.
(iii)    Interest.
(iv)    Costs.
(v)     Such further or other orders as [to] the court appears appropriate.
There is no claim, in the alternative, for damages for breach of contract.
By its defence, the insurer admits that it rejected the claim (paragraph 4.1) and raises various matters by way of defence including the following.
(i)that it was an express term of the policy that the insured was not entitled to make a claim after cancelling the policy (paragraph 3.2);
(ii)that its rejection of the claim was on the basis that the insured was not eligible to make a claim on the policy “as it had been cancelled” (paragraph 4.3);
(iii)in the alternative, that even if the insured was entitled to make a claim on the policy, the insured has not established any entitlement to a terminal illness benefit within the meaning of the policy “in any event” (paragraph 4.5);
(iv)in answer to the whole of the claim, in effect, that it was not possible in the circumstances for the insurer to have formed the necessary opinion during the currency of the policy, this (timeframe) being an essential requirement of the insuring clause (paragraph 5);
It may be a matter for further argument as to whether or not, in these circumstances, the insured’s claim is more appropriately one for damages for breach of contract rather than a claim effectively in debt.[50] If so, and should the pleadings remain in their present form, the question might arise as to whether the court would be entitled to give relief by way of damages, notwithstanding that it has not been expressly sought in the insured’s prayers for relief, given the discretion available to the court pursuant to Supreme Court Rule 6R 223. I am of the view, that these matters can and should be left to another day and that the present state of the pleadings does not preclude the court from adopting or applying the approach taken in the total and permanent disablement authorities to the effect that the question of whether or not Mr Eden had a terminal illness during the term of the policy is now a question for the court to determine.
[50] See the observations in McArthur by McPherson JA at [9]-[10], and Muir J at [58]-[59].
The insurer, in its supplementary written submissions dealing with this question of whether or not the insurer should now be asked to enter upon the opinion forming exercise, did not directly challenge the line of reasoning set out above and the authorities said to be in support of it. The insurer’s principal argument is to the effect that for the court to embark upon the opinion forming exercise “would, having regard to the conduct of the parties to date and the history of the case, work an injustice against [the insurer]”. The insurer submits that an estoppel operates to prevent the insured from asking the court to proceed with the entirety of the case, now that the preliminary question has been determined in favour of the insured. Instead the matter should be referred back to the insurer to form its opinion.
The insurer submits that it has conducted itself since a very early stage on the basis of the agreement between the parties as embodied in the courts consent orders for the early determination of preliminary questions. To allow the proceedings to take a different course, that is, for the court to determine all issues, would lead to the insurer suffering “real prejudice”. The insurer has identified the following as the alleged prejudice.
(i)It has not yet taken steps to assess the claim on its merits. In other words, on the basis of the agreement reached between the parties for an efficient (as hoped for) disposition of the matter, it has not taken any steps to consider its opinion as to terminal illness on the assumption that the policy is capable of responding. As such, the insurer has been deprived of the opportunity to investigate the merits of the claim. If after having investigated the merits of the claim the insurer were to form the opinion that, even on the proper application of the policy terms (as now determined by the court) the life insured did not at any relevant time suffer from a terminal illness, any such, alternative, defence will now be denied to the insurer should the court take upon itself the role of determining the opinion.
(ii)A second form of prejudice asserted by the insurer is that but for the agreement with the parties to embark on a determination of the two preliminary issues, the insurer might well have taken a different approach and applied for a summary dismissal of the insured’s proceeding. According to the insurer, this is a course which has now been denied to it.
In addition, the insurer submits that, unlike the total and permanent disability cases relied on by the insured, the present case is one where no view on the central issue has been taken by the insurer at all. It cannot be said that, in undertaking the opinion forming exercise it has acted unreasonably or not in good faith or has taken a view which could be shown to be unreasonable on the material before it.
I accept this latter submission insofar as it goes; it follows from the fact that, at no time has the insurer purported to express any opinion on the factual issue. However, the insurer refused the claim and did so on the basis, inter alia, of the medical evidence provided when read in conjunction with the terms and conditions of the insurance plan, as construed or interpreted by the insurer.
Given the medical evidence and the plan’s terms and conditions stated above, we find that your client is not eligible to make a claim as the plan ended on 17 November 2011, some 2 months before your client was diagnosed.[51]
At that point in the parties’ relationship, 28 May 2012, when the insurer sent its letter rejecting the claim, the insurer acted in breach of the policy terms and may be seen to have repudiated its contract with the insured.[52]
[51] Statement of Agreed Facts, exhibit P1, at p148.
[52] I have not heard full argument on any issue of repudiation. Further, whether or not subsequent conduct by the insured might be seen as an acceptance of any such repudiation so as to effect a termination of the contract, whether or not it was too late for any such termination to take effect given that the contract already had been brought to an end as at 17 November 2011, whether or not any such termination of the contract either on 17 November 2011 or later by acceptance of repudiation would operate subject to any unconditionally acquired right in the insured for the terminal illness benefit to be paid (see generally McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 (Dixon J)) or whether or not, in the circumstances, the insured should be confined to a claim in damages for breach of contract, are matters that do not need to be considered at this stage.
In my view, it is the breach by the insurer of the contract that has directly led, on the basis of the authorities dealt with above, to it being deprived of the opportunity now to engage upon the opinion forming exercise. It is not the agreement of the parties that has caused this legal result to occur. In any event, the insurer elected, albeit after discussions and upon agreement with the insured, to follow a particular procedural path. That path brought with it the consequences that I have found should follow in law as a result of the court’s determination of the preliminary issues.
I place little weight on the argument that the insurer has been diverted from pursuing a summary dismissal application. The effect of the reasoning I have adopted with respect to the preliminary issues is that the insured should be permitted to have its factual case considered on the basis that, subject to appropriate factual findings being made, the policy may be found to respond to the claim. Any application by the insurer for summary dismissal of the insured’s claim would have failed for these or similar reasons. The insurer’s concerns arising from the fact that it has not, as yet, had or taken the opportunity to factually investigate the insured’s claim, can be re-agitated in the context of the necessary directions to be made to enable both parties to be ready to proceed to trial on the question of whether the insured can establish, as a matter of fact,[53] that Mr Eden “[had] a terminal illness” during the period of the policy.
[53] See Bryson J in Sayseng at [77].
I have answered the two preliminary issues, in favour of the insured’s position (paragraph [73] above). I also have held that the matter should now proceed by way of trial in this court until the insured’s claim is finally determined. In these circumstances, I take the view that it is not appropriate to provide what might be regarded as an advisory opinion on the question of what evidence either party would be permitted to adduce at trial, nor on the question of the “as at date”, that is, from what date the court would need to be satisfied that Mr Eden had only 12 months to live.
Admissibility of evidence ordinarily should be determined, following such argument as necessary, at the time that evidence is sought to be tendered and with the court having the benefit of knowing the nature of the evidence sought to be tendered and the purpose of its tender. Ordinarily, this would take place during the trial process itself. As far as the second question is concerned, I accept that, essentially, it involves a question of policy construction. Nevertheless, my present inclination is that the question would be better and more safely answered after hearing full argument and in the context of the evidence led at trial.
The parties have filed written submissions with respect to this second question. I also recognise that the issue might need to be resolved sooner rather than later during the trial in the event that an objection were to be raised to the admissibility of evidence, on the basis that the evidence in question was said to be irrelevant because it addressed the wrong timeframe. It may be that, after the parties have reflected on these reasons, they may seek the determination of a further preliminary issue directed to this second question. However, I would like to hear further from the parties before proceeding on that course.
I will hear the parties with respect to what steps need to be taken and within what timeframes in order to enable both parties to be ready to continue with the trial of the insured’s claim.