McCormick and Secretary, Department of Social Services (Social services second review)

[2020] AATA 1488

McCormick and Secretary, Department of Social Services (Social services second review) [2020] AATA 1488 (27 May 2020)

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL              )
  )  No: 2019/7323-24
GENERAL DIVISION  )

Re: Sarah McCormick
Storm McCormick
Applicants

And: Secretary, Department of Social Services
Respondent

CORRIGENDUM

TRIBUNAL:  Member R Maguire

DATE OF CORRIGENDUM: 4 November 2020

PLACE:           Brisbane

The Tribunal directs the Registrar, pursuant to section 43AA(1) of the Administrative Appeals Tribunal Act 1975 (Cth), to alter the text of the decision in this application accordingly.

The quotation of section 10(2) of the Social Security (Exempt Lump Sums – Payments Compensatory in Nature for Non-Economic Loss) Determination 2017, 8 June 2017 contained in paragraph 12 of the decision is corrected to read:

     (2)  Subsection (1) does not cover the following payments (however described in a  

relevant policy document);

(a)  an income protection payment;
   (b)  a total and permanent disability or incapacity payment;
   (c)  a total and temporary disability payment;
   (d)  a permanent and partial disability payment;

that are paid as a lump sum under:

(e)  a sickness or accident insurance policy; or
  (f)  a group insurance policy arranged by the trustees of a superannuation

fund.

...............................[SGD].............................
Member R Maguire

Division:GENERAL DIVISION

File Number(s):      2019/7323 and 2019/7324

Re:Sarah McCormick

Storm McCormick

APPLICANTS

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Member R Maguire

Date:27 May 2020

Place:Brisbane

The decisions under review are set aside and the matters are remitted back to the Respondent for a recalculation of the Applicants’ benefits in accordance with these reasons.

........................................................................

Member R Maguire

Catchwords

Social Security – Disability Support Pension – Carer’s Payment – Ordinary Income – Meaning of Ordinary Income - Exempt Lump Sum – Insurance Benefit – Insurance Benefit not Ordinary Income

Legislation

Social Security Act 1991 (Cth)

Social Security (Exempt Lump Sums – payments compensatory in nature for non-economic loss) Determination 2017

REASONS FOR DECISION

Member R Maguire

27 May 2020

INTRODUCTION

1. The Applicants seek review of two related decisions of the Social Services and Child Support Division of the Administrative Appeals Tribunal dated 4 October 2019.[1] These decisions affirmed two previous decisions of an Authorised Review Officer (‘ARO’) both dated 18 July 2019,[2] which cancelled the Applicants’ payment of disability support pension and carer’s payment under the Social Security Act 1991 (Cth) (‘the Act’) with effect from 24 May 2019.

   [1] Exhibit 1, Section 37 T Documents, T Document 3 Social Services and Child Support Division Decision, dated 4 October 2019.

   [2] Exhibit 1, Section 37 T Documents, T Document 26 ARO Decision, dated 18 July 2019.

2. This arose in consequence of the receipt by Sarah McCormick (‘the first Applicant’) of a payment  received by her following a claim by her for a Total and Permanent Disablement (‘TPD’) benefit payable under a self-funded insurance policy (‘the policy’) which she had held since 23 July 2004.[3] The Respondent treated this payment as ‘ordinary income’ within the meaning of section 8 of the Act, and in excess of the income limit for a couple, and cancelled the payments referred to above.

   [3] Exhibit 3, Respondent’s Statement of Facts, Issues and Contentions, attachment A insurance statements dated June 2012 to June 2018.

3. The hearing of these reviews took place by telephone (owing to Covid-19 restrictions) on 12 May 2020. There was no issue as to facts, and no witnesses were called. The Tribunal heard submissions from Mr Nolan of Counsel for the Applicants, and Mr Dube, Solicitor for the Respondent.

4. It was agreed that the sole issue in these reviews is whether the TPD lump sum payment to the First Applicant is ‘ordinary income’, i.e. not ‘an exempt lump sum’ for the purposes of section 8(1) of the Act.

5. The Tribunal had before it exhibits as follows:

   (a)Exhibit. 1, Section 37 T documents;

   (b)Exhibit. 2, Applicants’ Statement of Facts Issues and Contentions; and

   (c)Exhibit 3, Respondent’s Statement of Facts Issues and Contentions, including attachments A and B.

   THE LAW

6. In section 8(1) of the Act, ‘ordinary income’ is defined as follows:

   ‘“ordinary income” means income that is not maintenance income or an exempt lump sum.’

7. For present purposes, the concept of ‘an exempt lump sum’ is found in section 8(11)(d) of the Act which provides that:

   (11) An amount received by a person is an exempt lump sum if:

   …

   (d) the amount is an amount, or class of amounts, determined by the Secretary to be an exempt sum.

8. Sections 3A and 8(11)(d) of the Act enable the Secretary to make determinations. For present purposes, the relevant determination is entitled Social Security (Exempt Lump Sums – payments compensatory in nature for non-economic loss) Determination 2017 (‘the Determination’).[4]

   [4] Secretary for the Department of Social Services, Social Security (Exempt Lump Sums – payments compensatory in nature for non-economic loss) Determination 2017 (F2017L01435, 12 October 2017) (‘The Determination’).

9. It is convenient to set out the relevant sections of the Determination.

10. Section 5 of the Determination relevantly provides:

    5. Exempt lump sum

    (1) Subject to subsection (2), for the purposes of paragraph 8(11)(d) of the Act, the gross amount of a payment covered by subsection (3) or another provision of this instrument:

    (a) is an exempt lump sum;

    ….

11. Section 6 of the Determination relevantly provides:

    6. Payments made on death, medical trauma or medical event

    For the purposes of section 5, this section covers the following payments:

    (a)a payment made under a contract of insurance:

    (i)     on the death of a person insured under the contract if a minimum benefit determined under the contract is payable; or

    (ii)    in respect of a medical trauma or medical event specified in the contract;

    (b)a payment made by a superannuation fund of a death benefit on the death of a fund member to a person nominated or entitled to receive the benefit.

12. Section 10 of the Determination relevantly provides:

    10. Payments relating to personal injuries etc.

    1Subject to subsection (2) of this section and for the purposes of section 5, this section covers a payment, made in Australia, that:

    (a)relates to:

    (i)     a personal injury, disease or condition; or

    (ii)    a medical procedure; and

    (b)is:

    (i)     a payment of damages; or

    (ii)    a payment under any insurance or compensation scheme set out under a law of the Commonwealth, or a State or a Territory, including a payment made under a contract entered into under such a scheme; or

    (iii)   the settlement of a claim for damages (whether or not accompanied by an ad mission of liability); or

    (iv)   a payment in the nature of compensation or damages.

    2Subsection (1) does not cover the following payments (however described in a relevant policy document):

    (a)an income protection payment;

    (b)a total and permanent disability or incapacity payment;

    (c)a total and temporary disability payment;

    (d)a permanent and partial disability payment;

    (e)that are paid as a lump sum under:

    (f)a sickness or accident insurance policy; or

    (g)a group insurance policy arranged by the trustees of a superannuation fund.

    SUBMISSIONS

13. For the Applicants, it was submitted that the payment fell within section 6(a)(ii) of the Determination as it was a payment made under a contract of insurance ‘in respect of a medical trauma or medical event specified in the contract’, and was therefore, an exempt lump sum excluded from being treated as ’ordinary income’. Neither party contended that the payment was ‘maintenance income’.

14. The Respondent on the other hand, contended that the payment was ‘ordinary income’ in consequence of section 10(2)(b) of the Determination, and was not a ‘payment in respect of a medical trauma or event specified in the contract’ for the purposes of

    
    

    section 6(a)(ii).

    CONSIDERATION

15. Section 5 of the Determination provides in essence that subject to exceptions not presently relevant, the gross amount of payments covered by subsection (3) or another provision of the instrument are exempt lump sums. The gross amount of a payment will be an exempt lump sum if it satisfies the requirements of subsection (3) or another provision (‘the qualifying provisions’).  If a payment may be treated as an exempt lump sum under one qualifying provision, it does not cease to be so because it does not satisfy another qualifying provision.  Conversely, a payment which is not an exempt lump sum under one qualifying provision may still satisfy the requirements of another. The qualifying provisions do not operate subject to each other, but rather, stand independently alongside each other. There is scope for some overlap. None has precedence over the other or a power of veto over the other.

16. The Tribunal notes that section 6(a)(ii) of the Determination is not confined in its operation to any particular type of contract of insurance. The Determination does not provide any definition for ‘medical trauma’ or ‘medical event’, and the Tribunal considers that these words carry their ordinary meaning. Once the insurer accepted the plaintiff’s selection of the ’any occupation TPD’ the requirements for the ‘any occupation TPD’ were specified in the contract. Foremost amongst the contractual requirements to establish ’any occupation TPD’ was that the First Applicant ‘suffered a sickness or injury’. The Tribunal accepts that being assessed as totally and permanently disabled was a medical trauma or medical event specified in the contract of insurance, and that section 6(a)(ii) is satisfied.

17. Section 10(2) of the Determination on the other hand encompasses only payments paid as a lump sum under either a sickness or accident insurance policy, or a group insurance policy arranged by the trustees of a superannuation fund.

18. Attachment A to Exhibit 3 comprised policy schedules for the years 2012-2018. Attachment B comprised the Product Disclosure Statement which provided the policy wording of the First Applicant’s insurance policy under which the payment was made.

19. Detailed product information at page 15 of Attachment B to Exhibit 3 is headed ‘Life Cover’, and provides that ‘Life Cover pays a lump sum if you die or become terminally ill’. Immediately following this item, is a heading ‘Optional Life Cover Benefits’. It opens with the words, ‘the following benefits are available under the Life Cover policy for an additional premium’. One option available to, and taken up and paid for by the First Applicant, was for TPD which provided for three definitions, discussion of which begins at page 17.[5] The relevant definition for present purposes was ‘any occupation’ discussed at page 18,[6] which allowed for a person working 20 hours or less per week to move in and out of the workforce without changing definition.

    [5] Exhibit 3, Respondent’s Statement of Facts, Issues and Contentions, attachment B Product Disclosure Statement, dated January 2012.

    [6] Exhibit 3, Respondent’s Statement of Facts, Issues and Contentions, attachment B Product Disclosure Statement, dated January 2012.

20. Had the First Applicant not availed herself of the TPD option, she would have been left with what could only be described as a life insurance policy. However, she did avail herself of that option, and paid the necessary additional premium for it.

21. Entitlement to TPD payment is founded upon a number of specified conditions not presently relevant set out at page 93 of Attachment B. That passage is followed by an alternative path which commences ‘or you have suffered a sickness or injury; and …’ other criteria.

22. The word ‘accident’ does not feature in the conditions, and an accident is not a pre-requisite of entitlement to payment for TPD. This recognises that injuries can arise in many circumstances other than accident, and often do.

23. Whilst section 10(2)(b) of the Determination excludes certain total and permanent disability or incapacity payments, it does so only to the extent that such payments are paid as a lump sum under either section 10(2)(e) pursuant to a sickness or accident policy; or a group insurance policy arranged by the trustees of s superannuation fund.[7] Section 10(2) does not capture lump sum insurance payments for total and permanent disability or incapacity payments made under any insurance policy other than those specifically described in section 10(2)(f) and (g) of the Determination. Greater clarity of language would be required in the Determination in order for it to do so.

    [7] The Determination n4, s 10(2)(f).

24. The Tribunal considers that the TPD benefit is properly viewed as an adjunct to the life insurance policy and one which did not change the essential character of that life policy. The Tribunal finds itself unable to characterise the policy as a ‘sickness or accident policy’.

25. Moreover, the absence in the PDS of any reference to accident also leaves the Tribunal unable to characterise the policy which included the TPD benefit as a ‘sickness or accident policy’ for the purposes of section 10(2) of the Determination. The First Applicant was not insured against sickness or accident, she was insured against sickness or injury, howsoever arising. The Tribunal is unable to find that the policy is one described in section 10(2)(e), a sickness or accident policy.

26. The Tribunal, for these reasons, finds that section 10(2) of the Determination has no application in the present circumstances.

27. The Tribunal therefore concludes that the amount of the lump sum payment received by the First Applicant was an amount determined by the Secretary to be an exempt lump sum for the purposes of section 8(11) of the Act, and therefore was not ‘ordinary income’ for the purposes of section 8(1) of the Act.

28. It follows that the decision of this Tribunal is that the decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal dated 4 October 2019 is set aside, and in its place, a decision that the amount of the lump sum payment received by the First Applicant was an exempt lump sum within the meaning of section 8(11) of the Act, and was therefore not ‘ordinary income’ for the purposes of section 8(1) of the Act.

29. Accordingly, the decisions under review are set aside and the matters are remitted back to the Respondent for a recalculation of the Applicants’ benefits in accordance with these reasons.

I certify that the preceding 29 (twenty -nine) paragraphs are a true copy of the reasons for the decision herein of Member R Maguire

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Associate

Dated: 27 May 2020

Date(s) of hearing:	12/05/2020
Date final submissions received:	03/03/2020
Counsel for the Applicant:	Phillip Nolan
Solicitors for the Applicant:	Paul Watson
Solicitors for the Respondent:	Ben Dube