McArthur v Mercantile Mutual Life Insurance Co Ltd
[2000] QDC 436
•12/07/2000
[2000] QDC 436
IN THE DISTRICT COURT
HELD AT BEENLEIGH
QUEENSLAND
Rockhampton Plaint No. 69 of 1997
BETWEEN:
JEFFREY ROBERT McARTHUR
Plaintiff
AND:
MERCANTILE MUTUAL LIFE INSURANCE COMPANY LIMITED
Defendant
REASONS FOR JUDGMENT
| 1, | This is an action by Jeffrey Robert McArthur (“the Plaintiff”) for |
payment of an agreed benefit under a Group Life Contract (“the Policy”)
issued by Mercantile Mutual Life Insurance Company Limited (“the
Insurer”) or for damages for breach of the Policy by the Insurer. In order
to explain the issues which arise for determination it is necessary to set
out a basic chronology and explanation of the orders made to this time.
| 2, | The Plaintiff is an eligible beneficiary under the Policy. Following |
periods of absences from his employment at the Norwich Park Mine his
employment was terminated in February 1995. On 28th March, 1995 he
lodged a claim for payment of an agreed benefit under the Policy on the
basis he was totally and permanently disabled (TPD). His entitlement to a payment under the Policy at that stage was dependent upon the
Insurer forming an opinion that, as a result of injury or illness, he was
likely never to be engaged in any suitable gainful employment.
3. The definition of total and permanent disablement (TPD)1 in the
Policy is relevantly:-
“(b) in the case of an Insured Person who is engaged in a gainful occupation, business, profession or employment –
(i) the Insured Person is totally unable to and does not in fact engage in that gainful occupation, business, profession or employment, as a result of an injury or illness for a consecutive period of six (6) months, and
(ii) after that period of six (6) months, we are of the opinion 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, business, profession nor employment, for which the Insured Person is reasonably suited by training, experience or qualification.”
| 4, | In order to consider whether it should form the opinion of future |
disablement in the TPD definition the Insurer collected various
statements and medical reports from two treating doctors (Dr. Kemp,
Dr. Holford). After reviewing the medical information it had collected the
Insurer decided to defer consideration of the claim until July 1996. It is competent for an Insurer in these circumstances to defer consideration of
the question or to obtain its own advice on the question provided the
Insurer in deferring consideration is acting reasonably and in good faith
and with due regard to the interests of the claimant.
5. While the further consideration of the claim was deferred the
Insurer apparently took no further steps to process the claim until the
Plaintiff’s solicitors forwarded a report from a psychiatrist
(Dr. Mulholland) dated 10th July 1996 to it. The Insurer then wrote to
Dr. Mulholland requesting he address a number of specific issues.
Dr. Mulholland replied by letter dated 27th September 1996.
6. The Insurer then declined the claim. Advice of the rejection was
contained in a letter from the Insurer dated 14th October 1996.
7. On 29th May 1997 the Plaintiff commenced the present action
against the Insurer on the basis the Insurer had wrongly declined the
Plaintiff’s claim under the Policy on or about 14th October 1996.
8. Sometime after the action had commenced the Insurer obtained
reports from two further doctors and, on the supplemented material then
before it, again purported to decline the Plaintiff’s claim.
Where used in the judgment the abbreviation TPD will refer to either ‘totally and
9. On 9th December 1998 I set aside the Insurer’s rejection of the
Plaintiff’s claim. The decision to set aside the Insurer’s rejection was not
on the basis that the failure to form the disablement opinion in the
definition of TPD was unreasonable on the material then before it2, but
on the basis the failure to form the disablement opinion was vitiated by a
breach by the Insurer of its duty to act reasonably, fairly, and in good
faith when considering the claim3. As the formation of the disablement
opinion is a condition precedent in the Policy for the benefit of the
Insurer, consistently with authority4 I held the Insurer, as a result of its
breach of duty, had lost the benefit of the condition and that in the
circumstances the Court should determine whether the Plaintiff was at
the relevant date TPD under the Policy.
10. After a number of mentions the action came on before me on
29th November 1999 at Beenleigh. Mr. Rolls, on behalf of the Plaintiff,
limited the action to one for breach of contract against the Insurer.
Technically it was competent for the action to be cast in terms of breach
permanently disabled’ or ‘total and permanent disablement’.
I concluded that a decision not to form the disablement opinion was not unreasonable on the
material then before the Insurer. I concluded that while an Insurer, acting reasonably, may have
formed the disablement opinion, a failure to form the disablement opinion at that time was not
necessarily unreasonable.
Essentially I found the Insurer applied an incorrect test to the material before it when
rejecting the claim.
of contract as the Plaintiff enjoys derivative rights against the Insurer in
respect of the Policy5. Mr Rolls submitted that damages could be
demonstrated if a reasonable Insurer would have formed the
disablement opinion on the material before the Insurer on 14th October
1996 (the date the Insurer decided not to form the disablement opinion).
In putting the Plaintiff’s case Mr. Rolls was insistent the determination
should be made only on the material before the Insurer on 14th October
1996. Both Mr. Rolls and Mr. Morton canvassed a number of reported
decisions. I will endeavour to set out the conclusions I have reached on
this aspect of the action.
11. The stipulation in a TPD definition making the opinion of the
Insurer a condition of liability represents a gloss on the definition which
operates for the protection of the Insurer. In the following discussion for
convenience TPD definitions with this condition will be called opinion
definitions and TPD definitions without this condition will be called fact
definitions.
12. Where the definition of TPD is a fact definition and the Insurer has
declined payment on the basis the claimant is not TPD, the issue for a
Edwards v. The Hunter Valley Co Op Diary Company Limited (1992) 7 ANZ Ins. Cases,
para. 61-113; Chammas v. Harwood Nominees Pty Ltd (1993) 7 ANZ Ins. Cases, para. 61-175;
Wyllie v. National Mutual Life Assoc. (unreported), S.Ct. N.S.W. 50094 of 1994, 18/4/97.
Edwards v. The Hunter Valley Co Op Diary Company Limited (1992) 7 ANZ Ins. Cases,
para. 61-113 at p. 77,536.
Court on an action for payment of an agreed benefit is whether at the
relevant date the claimant was TPD. For this purpose the Court may
receive evidence that was not before the Insurer on the relevant date.
Such evidence is admissible because the issue before the Court is
whether the claimant is TPD on the relevant date. The admissibility of
evidence not before the Insurer is consistent with principle (see Giles v.
National Mutual Life Association of Australasia Ltd (1986) 4 ANZ Ins.
Cases, para. 60-750 per Pidgeon J. at 74,529) and may be justified on
the ground of necessity as the materials before the Insurer at the
relevant date may be inadequate. In these circumstances the
determination of the Court will resolve the question of whether the
Plaintiff is TPD.
13. Where the TPD definition is an opinion definition and the Insurer
has declined payment on the basis that it has failed to form the opinion
the claimant is TPD, the issue is whether the failure to form the opinion
was unreasonable on the materials before the Insurer at the relevant
time[6]. Generally evidence not before the Insurer at the relevant time is
[6] Heitman v. Guardian Assurance Co. Ltd (1992) 7 ANZ Ins. Cases para. 61-107; Tonkin v.
irrelevant. One qualification to this latter principle relates to evidence
that is explanatory of the material before the Insurer7. Where the issue
before the Court is not whether the decision of the Insurer was unreasonable on the material before it but whether the Insurer was in
breach of its duty to the claimant, the need to confine the evidence to
that before the Insurer on the relevant date is not present.
14. A determination that an Insurer’s decision not to form the TPD
opinion should be set aside leaves unresolved the question as to
whether the claimant is TPD under the particular Policy. There are a
number of different approaches a Court could adopt towards the
admissibility of evidence when determining whether a claimant is TPD.
15. Firstly, the question may be sent back to the Insurer to reconsider.
This course may be appropriate where the decision set aside is an
exercise by trustees of a power under a trust. There are differences
however between a power under a trust and the stipulation that TPD is to
be established to the satisfaction of an Insurer. In the latter case the
stipulation exists solely for the benefit of the Insurer. In these
circumstances the approach of the Courts generally has been for the
Court itself to determine whether the claimant is TPD.
16. Secondly, the court may determine whether the claimant is TPD
under the Policy definition on the material before the Insurer at the
relevant date. This approach was adopted by Commissioner Roberts-
Tonkin v. Western Mining Corporation (unreported), S.Ct. of W.A., 2161 of 1991 and 1424
Smith Q.C. in Ivkovic v. Aust Casualty & Life Limited (1994) 10 S.R.
(W.A.) 325.
17. Thirdly, the Court may determine whether the claimant is TPD
under the Policy definition as if the condition precedent was not in the
definition. In these circumstances the Court would determine whether
the claimant was TPD at the relevant date on all relevant evidence
available at the date of trial. This generally has been the approach
followed8. In my opinion this is the appropriate course to follow in this
case. I will endeavour to explain why I have reached this conclusion.
18. In all policies in which the definition of TPD requires the formation
of an opinion by the Insurer that the claimant is TPD a plaintiff/claimant
must negotiate two logically separate processes. The first is a challenge
to the failure or refusal to form the opinion. If the challenge is
successful, the second process involves a determination by the Court of
TPD in the particular case. Commissioner Roberts-Smith Q.C. in Ivkovic
v. Aust Casualty & Life Limited 9 confined the evidence admissible at
both stages to the evidence before the Insurer at the relevant time. The
Commissioner did so in reliance upon the reasoning of Franklyn J. in
of 1994, 31/5/96 at p.9.
Giles v. National Mutual Life Association (1986) 4 ANZ Ins. Cases, para. 60-750; Alessi v.
National Mutual Life Association (1992) 2 ANZ Ins. Cases, para. 60-481.
(1994) 10 S.R.(W.A.) 325.
Heitman v. Guardian Assurance Company Limited[10]. Heitman
[10] (1992) 7 ANZ Ins. Cases, para. 61-107.
concerned only the first stage, and as I interpret the case it is not
authority for confining the evidence at the second stage to that before the
Insurer. At the first stage the issue to be determined is the
reasonableness of the decision on the material before the decision
maker. At the second stage the issue is whether the claimant is TPD at
the relevant time. In determining that issue I do not understand why a
Court should exclude from consideration relevant and cogent evidence
simply because it was not before the decision maker at the relevant time.
The evidentiary rule appropriate to the first stage owes its existence to
the limited nature of the inquiry at that stage. In my view when a Court is
required to determine whether a claimant is TPD all relevant evidence
available at the date of trial is admissible. This view is I think consistent
with all the decided cases apart from Ivkovic v. Aust Casualty & Life
Limited.
19. In his final submissions Mr. Rolls confined the Plaintiff’s action to
one for damages for breach of contract. As a consequence of the earlier
ruling setting aside the decision of the Insurer Mr. Rolls submitted that all
the Plaintiff needed to establish to complete his cause of action was to
demonstrate the breach of duty resulted in a loss to him. Mr. Rolls argued the Plaintiff is entitled to succeeded in the action because, but for
the breach of duty, the Insurer would have accepted the claim. On this
argument the relevant question is whether a reasonable insurer would
have formed the TPD opinion on the material before the Insurer on 14th
October 1996 (the relevant date). Mr. Morton, for the Defendant, argued
the factual issue is substantially the same irrespective of whether
technically the object of the inquiry is to determine an entitlement to
damages or to determine whether the Plaintiff is entitled to payment of
an agreed benefit under the Policy. In either circumstance, the Court is
required to determine whether the Plaintiff was TPD within the definition
at the relevant date. For this purpose, Mr. Morton argued, the Court is
not confined to the material before the Insurer at the time of rejection.
20. At this point it is convenient to set out the conclusions I have
reached on the critical factual issues. The material before the Insurer on
14th October 1996 consisted of reports from the Plaintiff’s general
practitioner (Dr. Holford), from the Director of the Infectious Diseases
Unit, Royal Brisbane Hospital (Dr. Kemp), and a psychiatrist
(Dr. Mulholland). Dr. Holford and Dr. Kemp considered the appropriate
diagnosis was chronic fatigue syndrome (complicated by a personality
disorder). Dr. Mulholland thought the appropriate diagnosis was entirely
a psychological one. Both Dr. Holford and Dr. Kemp considered the
Plaintiff was TPD within the definition, although Dr. Holford’s opinion seemed to be qualified[11]. Dr. Mulholland’s opinion on whether the
[11] “While I believe that Mr. McCarthy’s illness fits the Part (i) of (b) of your definition of
Plaintiff was within the TPD definition is set out in the following extracts
from his reports:-
“I would suggest that it is unlikely that he is going to get back to work within the next two to five years. It is difficult to make predictions beyond that time except to make the general prediction that the longer people are off work the more likely they are to stay off work even if the original reason for their going off work has now resolved. In the long run I suspect that it is more likely than not that he is not really going to get back into the work force.”
(Report dated 10th July, 1996 to the Plaintiff’s solicitors)
“I note your definition of permanent and totally disabled. I must say that the word ‘never’ is a difficult one to get around in a man who is only 38 years of age. Frankly I think it unlikely that he is going to get back into the work force in the foreseeable future, meaning about five years. I note his previous occupations have mostly been of a physical variety and unless something unexpected happens I think that it is likely that he will not be engaged in any gainful work again.
You will appreciate that it is difficult for me to say ‘never’ because that involves making predictions of over 20 years duration which I feel reluctant to do.”
(Letter dated 27th September 1996 to the Insurer.)
The use of the word ‘suspect’ in the report to qualify the opinion the
Plaintiff ‘is not really going to get back in the work force’, and the
expressed reluctance to commit himself to a prediction over a longer
period of time could influence a reasonable Insurer to obtain a further psychiatric opinion to clarify the reservation expressed by
Dr. Mulholland.
21. A reasonable Insurer would be entitled to prefer the diagnosis of
Dr. Mulholland, to that of Dr. Kemp and Dr. Holford. Given the
qualification expressed by Dr. Mulholland, a failure to form the TPD
opinion would not necessarily be unreasonable as an Insurer, acting
reasonably, may decide to obtain a further psychiatric opinion to clarify
the reservation expressed by Dr. Mulholland. The conclusion I have
reached on this aspect of the case is that a reasonable Insurer may have
declined to form the TPD opinion on the material in the Insurer’s
possession on the relevant date (14th October 1996). If a further
deferment of the claim was not reasonably open to the Insurer, in the
light of Dr. Mulholland’s letter (27th September 1996), then I agree with
Mr. Rolls’ submission that a reasonable Insurer would have formed the
TPD opinion. However, because I think it was open to an Insurer, acting
reasonably, to defer a decision in the light of the new information
contained in Dr. Mulholland’s report (10th July 1996) and letter (27th
September 1996), on this aspect of the case I am against the Plaintiff.
22. The Insurer placed two additional opinions before the Court, one
by a physician (Dr. John Douglas), the other by a psychiatrist
(Dr. Nothling). Both expressed an opinion the Plaintiff is not TPD within the definition within the Policy. On the basis of all the material I am not
satisfied the Plaintiff is TPD. In the circumstances it is unnecessary to
consider Mr. Morton’s further argument that the failure of the Plaintiff to
give evidence means that the Plaintiff’s case is technically unproven.
23. In deference to Counsel I should indicate I do not accept Mr. Rolls’
approach is correct. Firstly, it must be remembered the breach concerns
a clause in the Policy that operates solely for the benefit of the Insurer in
the processing of claims under the Policy. The effect of a breach of the
clause is that the Insurer may lose the benefit conferred on the Insurer by
the clause[12]. Secondly, I believe that considerations of necessity and
[12] Edwards v. The Hunter Valley Co Op Dairy Co. Ltd. (1992) 7 ANZ Ins. Cases, para. 61-
justice militate against the approach proposed by Mr. Rolls13. The
fundamental purpose served by an award of damages is to compensate
a party for a loss suffered as a consequence of a breach by the other
party. If in fact a claimant cannot be demonstrated to be TPD at a
relevant date then the only “losses” suffered by the claimant are either
merely procedural or technical. In substance there has been no loss.
In all the circumstances the Plaintiff’s action must be dismissed.
Judgment is accordingly given for the Defendant.
One situation that could arise if Mr. Rolls’ approach was adopted is that a plaintiff may be
found to be TPD on the material before the insurer even though the plaintiff had since returned to
work and it was common ground that in fact he (or she) was not TPD.
Western Mining Corporation (unreported), S.Ct. of W.A., 2161 of 1991 and 1424 of 1994, 31/5/96.
Totally and Permanently Disabled, Part (ii) is more difficult to answer I am uncertain if he will ever be able to return to gainful employment but cannot say that he may not.” Letter dated 11th July, 1995 from Dr. Holford to the Insurer.
113; Chammas v. Harwood Nominees Pty Ltd (1993) 7 ANZ Ins. Cases, para. 61-175; Wyllie v.
National Mutual Life Association (unreported), S.Ct. of N.S.W., 50094 of 1996, 18/4/97.
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