MLC Nominees Pty Ltd v Daffy
[2017] VSCA 110
•15 May 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0153
| MLC NOMINEES PTY LTD and MLC LIMITED | Applicants |
| v | |
| KEVIN ADRIAN DAFFY | Respondent |
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| JUDGES: | BEACH and McLEISH JJA and KEOGH AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 3 May 2017 |
| DATE OF JUDGMENT: | 15 May 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 110 |
| JUDGMENT APPEALED FROM: | [2016] VSC 606 (McDonald J) |
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INSURANCE – Appeal - Total and permanent disability policy – Construction of insurance policy – Businesslike interpretation – Whether construction posited by insurer so unjust as to suggest error - Liability to pay benefits not already accrued ceasing on termination of employment – Whether benefit had accrued at time of termination of employment – Time at which a benefit accrues - Benefit not already accrued when employment terminated – Appeal allowed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr P Murdoch QC with Mr B Jellis | Norton Rose Fulbright Australia |
| For the Respondent | Mr J P Brett QC with Mr D Kelsey-Sugg | Lennon Mazzeo |
BEACH JA
McLEISH JA
KEOGH AJA:
This case is about a claim for a total and permanent disability (‘TPD’) benefit under a policy of insurance called the M100 policy (‘the policy’). The respondent, Mr Kevin Daffy, is a ‘third party beneficiary’[1] under the policy. The applicants, MLC Nominees Pty Ltd and MLC Limited (collectively, ‘MLC’), were the parties to the policy. MLC Nominees Pty Ltd was the policy holder and MLC Limited was the insurer.
[1]As that expression is defined in s 11 of the Insurance Contracts Act 1984 (Cth).
The policy contained 13 schedules. Each schedule contained its own TPD clause. The central issue at trial was whether Mr Daffy’s claim for a TPD benefit was to be determined in accordance with the TPD clause in the First Schedule of the policy, or the Sixth Schedule of the policy. Mr Daffy’s case was that the First Schedule applied, and that he satisfied the TPD definition in that schedule. MLC’s case was that the Sixth Schedule applied. Mr Daffy did not dispute that if the Sixth Schedule applied then he did not satisfy the TPD definition in that schedule.
After a 12-day trial, a judge of the Trial Division determined that Mr Daffy’s TPD claim fell to be assessed under the First Schedule of the policy and that Mr Daffy satisfied the TPD definition in that schedule. On 17 October 2016, in accordance with his reasons for judgment,[2] the judge entered judgment for Mr Daffy in the sum of $1,521,071.64 (the amount of the TPD benefit under the policy) plus interest.[3]
[2]Daffy v MLC Nominees Pty Ltd [2016] VSC 606 (‘Reasons’).
[3]Interest was calculated to 8 November 2016 in the sum of $344,568.02 and accruing thereafter at $249.87 per day in accordance with the provisions of the Insurance Contracts Act 1984 and the Insurance Contracts Regulations 1985.
MLC seeks leave to appeal, contending that the judge erred in determining Mr Daffy’s claim pursuant to the definition of TPD in the First Schedule of the policy instead of the Sixth Schedule of the policy. MLC’s proposed grounds of appeal are as follows:
1.Having found that the respondent was transferred to the Sixth Schedule of the policy upon the cessation of his employment on 24 May 2011, the judge erred in his construction of the policy by failing to apply the Sixth Schedule definition of TPD to the respondent’s claim for a TPD benefit.
2.Having found that the respondent was transferred to the Sixth Schedule of the policy upon the cessation of his employment on 24 May 2011, the judge erred in his construction of the policy by applying the first schedule definition of TPD to the respondent’s claim for a TPD benefit.
3.The judge erred in his construction of the policy by finding that, upon the cessation of the respondent’s employment on 24 May 2011, the respondent had an ‘Occupation’ within the meaning of clause 6(b) of the first schedule.
In this Court, Mr Daffy contended that the judge was correct to apply the First Schedule definition of TPD and that, accordingly, there was no substance in any of MLC’s proposed grounds of appeal. In addition, Mr Daffy filed a notice of contention containing the following grounds:
1.The judge erred in finding that the respondent ‘would probably have continued to attend at work for a short period of time post 24 May 2011 had his employment not been terminated’. His Honour instead ought to have found that the respondent was absent from his Occupation solely through injury or illness for six consecutive months commencing 20 May 2011.
2.The judge erred in finding that on termination of his employment with [Southern Star Designer Windows Pty Ltd] on 24 May 2011, the respondent was transferred from the first schedule to the Sixth Schedule of the policy.
Background facts
On 14 October 2010, in the course of his employment with Southern Star Designer Windows Pty Ltd (‘SSDW’), while lifting a large sliding door, Mr Daffy suffered a prolapsed disc at the L5/S1 level of his lower back. At the time, he was both general manager and a 50 per cent shareholder in SSDW. As a result of suffering injury, Mr Daffy experienced ‘incandescent pain’, and was hospitalised for four days. He was then absent from work for a period of approximately four weeks.
At trial, there was a factual controversy about the extent to which Mr Daffy was able to perform his normal duties after he returned to work. However, it was not controversial that, on 24 May 2011, his employment was terminated during the course of a meeting with his fellow shareholders in SSDW. That termination had nothing to do with Mr Daffy’s injury or the performance of his duties as general manager, it related to a dispute about an unrelated matter.[4]
[4]Reasons [1].
SSDW was at all relevant times a ‘Participating Employer’ as defined in the policy. Mr Daffy was a ‘Member’ as that expression is defined in the policy. It was not in dispute at trial that the benefits prescribed under the policy in respect of Mr Daffy included TPD insurance (the amount of which was $1,521,071.64 during the year ended 30 June 2012), together with income protection benefit insurance of $7,187.50 per month for up to two years.
The judge concluded that Mr Daffy last worked for SSDW on 20 May 2011, and that Mr Daffy attended the meeting at which his employment was terminated on 24 May 2011 in his capacity as a shareholder of SSDW, not in his capacity as general manager.[5] While this issue was the subject of debate at trial, MLC does not now seek to dispute the correctness of these findings.
[5]Ibid [82]–[84].
Since the termination of his employment with SSDW, Mr Daffy has not engaged in any employment. At trial, MLC ultimately conceded that, for a period of six months commencing in late July 2011, Mr Daffy would have been unable to attend work solely through injury/illness.[6]
[6]Ibid [85].
In September 2011, Mr Daffy lodged an income protection benefit claim (called a disability benefit in the policy). The claim was accepted, but the quantum of the benefit was significantly reduced once Mr Daffy’s workers’ compensation payments were taken into account.[7] At trial, MLC accepted that Mr Daffy had an entitlement to claim a disability benefit in accordance with the First Schedule, notwithstanding the termination of his employment on 24 May 2011.[8]
[7]Ibid [162].
[8]Ibid.
On 29 May 2012, Mr Daffy lodged a TPD claim under the policy. Mr Daffy gave evidence at trial that, on 25 January 2013, he received a conference call from ‘a male and a female’ who told him that they were ‘trustees from MLC’. Mr Daffy said he was told that his file was being reviewed and that they were ‘looking at whether [he] should be in Schedule One or Schedule Six’. Mr Daffy gave evidence:
They said that there were pros and cons of both schedules, and one was better than the other and I said to them that I was 100 per cent sure as far as I was concerned that I was in Schedule One by virtue of the fact of when the injury was done and that was what was the cause of my inability to work and that it wasn’t a new and separate injury that had occurred after I had finished. They said they were going to look into all these matters and I got some hope that they were going to actually sort something out for me.
Mr Daffy’s claim was, however, rejected on 29 January 2013, and further requests for a review of the claim’s rejection were refused in September 2013 and November 2015. MLC’s rejection of the TPD claim was based upon MLC’s application of the Sixth Schedule definition of TPD. In particular, MLC was not satisfied that Mr Daffy had suffered a total irreversible inability to perform at least two of the ‘Activities of Daily Living’ as defined in the policy and referred to in the Sixth Schedule definition of TPD.
Premiums for the insurance cover to which Mr Daffy was entitled were charged by MLC to Mr Daffy and debited to his superannuation account. Annual statements tendered at trial showed that MLC charged, and Mr Daffy paid, the following insurance premiums:
Year ended 30 June
Income Protection Insurance Premium TPD Insurance Premium 2010 $301.43 $431.10 2011 $196.08 $521.03 2012 $109.73 $588.14 2013 — $648.30 2014 — $690.50 2015 $523.93 $904.03
Each annual statement contained side notes. The annual statement for the financial year ended 30 June 2010 contained a side note headed ‘Left or Changed Your Employer?’, under which the following appeared:
Please contact us if you have left or changed your employer, as you may no longer be insured. Any claim you submit may be declined, even though you continue to pay your premiums.
For more information about maintaining your insurance after leaving your employer, please visit MLC.com.au/info and refer to the MLC MasterKey Business Super Insurance Guide or call us.
The annual statement for the year ended 30 June 2011 contained the same side note. The annual statement for 30 June 2012 also had the same side note, but omitting the words ‘or changed’ in both the heading and text of the side note. However, the annual statements for 30 June 2013, 2014 and 2015, while continuing to contain side notes, did not contain any side note or statement about the potential insurance consequences of leaving or changing employment.
The policy
The policy contains the following definitions:
Activities of Daily Living means:
(a)bathing and showering; or
(b)dressing; or
(c)moving from place to place, including into and out of bed and into and out of a chair; or
(d)eating and drinking; or
(e)using the toilet.
Benefit means any benefit payable under this Policy.
Death Benefit means the Benefit payable under clause 4.1(a).
Disability Benefit means a benefit payable under clause 8.
Employed/Employment means a person being engaged in Full Time Employment, Permanent Part Time Employment, Fixed Term Employment or Casual Employment but does not include any person who is in Seasonal or Contract Employment.
Full Time Employment means being engaged in permanent employment for the standard number of work hours (usually a minimum of 30 hours per week) where the employer guarantees continuity of employment and where that person is in receipt of benefits normally associated with full time employment.
Illness means a sickness, disease or disorder.
Important Duties means the duties essential in producing a salary.
Injury means bodily injury that is caused by accidental means independently of any other cause and is not intentionally self-inflicted irrespective of whether the person is sane or insane.
Major Brain Injury means physical head injury that results in permanent loss of at least 25 per cent of either the brain’s mental function or its physical control function.
MLC means MLC Limited ABN 90 000 000 402 AFSL 230694 whose head office is located at 105-153 Miller Street North Sydney NSW 2060.
Monthly Benefit means such an amount as may from time to time be nominated by the Policy Holder and accepted by MLC as the monthly level of Disability Benefits for each Member which amount will not exceed the Maximum Monthly Benefit.
Occupation means the Employment or activity in which the person/Member is principally Employed.
Policy Holder means MLC Nominees Pty Limited ABN 93 002 814 959.
Quadriplegia means the permanent and total loss of use of both arms and both legs resulting from an Injury.
Total and Permanent Disability as defined in the appropriate Schedule (where applicable).
TPD means ‘Total and Permanent Disability’ as defined in the appropriate Schedule (where applicable).
TPD Benefit means the Benefit payable under clause 4.1(b).
Part III of the policy (cls 4-7) is entitled ‘Death, Interim Accident & TPD Benefits’. Clause 4.1 of the policy deals with death and TPD benefits. It relevantly provides:
Death and TPD Benefits (Applicable where Death Cover and Total and Permanent Disablement Cover applies to the Member)
If, whilst this Policy is in force in respect of a Member, the Member:
(a) dies, or
(b) suffers a Total and Permanent Disability,
then subject to the provisions of this Policy, MLC will pay the Policy Holder the Sum Insured for that Member, for whichever of the above events first occurs.
Clause 5 of the policy, headed ‘Interim Accident Benefit’, deals with the payment of interim accident benefits in respect of injuries occurring during ‘the period of risk’. Clause 5.4 provides for the payment of an interim accident benefit to a person who has been nominated for TPD cover and who, during the period of risk defined in cls 5.5 and 5.6, ‘in MLC’s opinion suffers any one of the following: Quadriplegia, Major Brain Injury, or the total and irreversible inability to perform at least two of the Activities of Daily Living’. Clause 5.4 provides that the amount of the interim accident benefit ‘will not exceed $500,000 for any one person’.
Clause 6 of the policy, headed ‘Continuation Option’, provides that where ‘this option’ is ‘included’, a member who ceases to be an employee of a participating employer may, within 60 days, lodge with MLC (the insurer) ‘an application (together with the first premium and the evidence of health required …) for a term life insurance policy on their own life provided that [certain conditions are satisfied]’. Clause 6 of the policy permits a member to apply for TPD cover ‘under the term life insurance policy’, on condition that the member:
must have had cover for TPD Benefits under this Policy immediately prior to the occurrence of the event and they must also be in other Full Time Employment acceptable to MLC. If MLC requests it, the person must supply satisfactory occupation and earnings information.[9]
[9]Clause 6.3(e) of the policy.
Part IV of the policy (cls 8-20) is entitled ‘Salary Continuance Benefits’. Clause 8.1 of the policy deals with disability benefits. It relevantly provides:
8. DISABILITY BENEFIT
8.1Subject to the terms of this Policy, if, whilst this Policy is in force in respect of a Member, the Member suffers from a Disability MLC will pay the Policy Holder a Disability Benefit at the rate of the Member’s Monthly Benefit:
(a)commencing at the expiration of the Waiting Period; and
(b)ending at the earlier of the end of the Benefit Period or the end of the Disability of the Member or the Member reaching the Maximum Insurable Age.
Clause 9 of the policy deals with the payment of ‘proportionate benefits’. Clause 11 deals with the circumstances in which interim disability accident benefits will be paid.
Clause 14 of the policy, headed ‘Continuation Option’, provides that where ‘this option’ is ‘included’, a member who ceases to be an employee of a participating employer may, within 60 days, lodge with MLC (the insurer) ‘an application (together with the first premium and the evidence of health required …) for an income protection insurance policy on their own life provided that [certain conditions are satisfied]’.
Clause 16 of the policy, headed ‘Pre-existing Conditions’ provides:
MLC will pay Salary Continuance Benefits within the Automatic Acceptance Limit for Disability resulting from any injury or illness occurring prior to the person becoming a Member. Where applicable, MLC will pay Salary Continuance Benefits in excess of the Automatic Acceptance Limit provided that condition has been disclosed to and accepted by MLC.
Clause 19 of the policy provides for the reduction of the level of any disability benefit or proportionate benefit by reference to a member’s receipt of other income or workers’ compensation.
Part V of the policy (cls 21-37) is entitled ‘General Conditions’. Clause 23 of the policy provides for the waiver of premiums in respect of salary continuance benefit insurance where disability benefits are being paid. This clause also provides for the resumption of the payment of such premiums upon the cessation of the payment of disability benefits.
Clause 25 of the policy concerns claims. Clause 25.1 provides that the Policy Holder (MLC Nominees Pty Ltd) must notify MLC Limited in writing as soon as ‘reasonably practicable after it has received notice from the Member of an event entitling the Policy Holder to a Benefit’. Clause 25.2 provides that if any claim is notified to MLC more than one year after the event giving rise to the claim and the delay results in MLC’s interests being prejudiced, MLC will not accept liability for that claim.
Clause 26 deals with payment of benefits. It provides at 26.1:
All Benefits to be paid in respect of a Member will be paid to the Policy Holder and the Policy Holder will hold the monies for the benefit of that Member and, where applicable, in accordance with the terms of any Trust Deed.
The effect of clause 26 is that if a benefit is payable in respect of a member then that benefit will be paid to MLC Nominees by MLC Limited, and MLC Nominees will then hold that money for the benefit of the member and pay the money to him or her.
Clause 27.1 deals with cessation of liability under the policy. It provides:
27.1Notwithstanding any other provision contained in this Policy, MLC's liability to pay any Benefits which have not already accrued in respect of a Member shall cease on the occurrence of the earlier of any of the following events:
…
(e) on the date the Member ceases to be an employee of a Participating Employer, unless the Member is covered under Schedule 3 or continues to be covered under Schedule 4 of the Policy, or with respect to a Family Member on the date the Family Member no longer meets the ‘Family Member’ eligibility conditions unless the Family Member continues to be covered under Schedule 6 of the Policy.
The First Schedule of the policy
The First Schedule is headed ‘Tailor Rated Plans’. This is a defined term in the policy.
Part 2 of the First Schedule sets out the eligibility conditions. Part 2 relevantly provides:
Subject to the terms and conditions of this Policy, Members of Funds administered by the Policy Holder are eligible for cover under this policy on such conditions as notified to MLC in the Employer's Application by each Participating Employer, and agreed to by MLC (as varied by written agreement from time to time).
…
The Policy Holder must notify MLC within 30 days if a Member changes the nature of their Employment with the Participating Employer. In such an event MLC will advise the Policy Holder in writing of any changes to the Member’s insurance cover and any revised premium applicable or whether the Member’s cover ceases under this Policy in accordance with clause 27.1(n).
Mr Daffy’s nomination by a participating employer for acceptance by MLC was not in issue at trial or in this Court. Moreover, it appears that the policy holder (MLC Nominees Pty Ltd) never gave MLC (the insurer) notice of any change in the nature of Mr Daffy’s employment. MLC’s position is that it was not necessary for the policy holder to give notice of a change in the nature of Mr Daffy’s employment with SSDW, because there was no change in the nature of that employment. Rather, Mr Daffy’s employment with SSDW was terminated.
The eligibility conditions in the First Schedule include the following exclusions from cover under the First Schedule:
Unless agreed to in the Special Conditions section of this Schedule, the following persons are excluded from the specified cover under this First Schedule of the Policy:
·Persons engaged in Permanent Part Time Employment working less than 15 hours per week are not covered for Salary Continuance Benefits;
·Persons who are Family Members are not covered for Salary Continuance Benefits;
·Persons engaged in Casual Employment are not covered for TPD or Salary Continuance Benefits; and
·Persons engaged in Seasonal or Contract Employment are excluded from all cover under the Policy unless they became Members on or before 31 October 2000.
Part 3 deals with ‘insurable ages’. Part 4 deals with ‘salary continuance benefits’. Part 5 deals with how benefits are payable.
Part 6 then contains the definition of TPD as follows:
TOTAL AND PERMANENT DISABILITY OPTIONS
Total and Permanent Disability shall mean:
(a)the Member suffering the permanent loss of use of two limbs or the sight of both eyes or the permanent loss of use of one limb and the sight of one eye (where limb is defined as the whole hand or the whole foot); or
(b)the Member having been absent from their Occupation solely through Injury or Illness for six consecutive months and after which time the Member has become in MLC's opinion, after consideration of all evidence obtained, incapacitated to such an extent as to render the Member unlikely ever to engage in any gainful profession, trade or occupation for which the Member is reasonably qualified by reason of education, training or experience;
(c)a Member who is engaged in permanent employment and working less than 15 hrs per week: having been absent from their Occupation solely through Injury or Illness for six consecutive months and after which time the Member has in MLC's opinion, after consideration of all evidence obtained, suffered a total and irreversible inability to perform at least two of the Activities of Daily Living;
(d)a Member who's [sic] occupation is classified as “Home Duties”: having been incapacitated through Injury or Illness for six consecutive months and after which time the Member is rendered in MLC's opinion, after consideration of all evidence obtained, unable to ever again attend to any normal physical domestic household duties.
Paragraphs (b) to (d) of the First Schedule TPD definition are subject to the following rider:
Where it can be clearly established to MLC’s satisfaction that the Member is Totally and Permanently Disabled MLC may pay at MLC’s discretion the Sum Insured before the end of the six consecutive month’s period of absence from their Occupation.
Part 7 of the First Schedule contains a statement that the continuation option (see cl 6 and cl 14 of the policy) is ‘included’.
The Sixth Schedule of the policy
The Sixth Schedule is headed ‘Automatic Rollover Plans’. This is a defined term in the policy.
Part 2 of the Sixth Schedule prescribes the eligibility conditions:
Existing insured Members who were covered under the First, Second, Seventh, Eighth, Ninth and Tenth Schedules who have left the employment of a Participating Employer and who have not elected to cease their insurance cover under this Policy.
In Part 6, the following definitions of TPD are provided:
TOTAL AND PERMANENT DISABILITY OPTIONS
Total and Permanent Disability shall mean:
(a)the Member suffering the permanent loss of use of two limbs or the sight of both eyes or the permanent loss of use of one limb and the sight of one eye (where limb is defined as the whole hand or the whole foot), or
(b)a Member who is engaged in permanent employment and working more than 15 hours per week having been absent from their Occupation solely through Injury or Illness for six consecutive months and after which time the Member has become in MLC's opinion, after consideration of all evidence obtained, incapacitated to such an extent as to render the Member unlikely ever to engage in any gainful profession, trade or occupation for which the Member is reasonably qualified by reason of education, training or experience;
(c)a Member who is engaged in permanent employment and working less than 15 hrs per week: having been absent from their Occupation solely through Injury or Illness for six consecutive months and after which time the Member has in MLC's opinion, after consideration of all evidence obtained, suffered a total and irreversible inability to perform at least two of the Activities of Daily Living;
(d)a Member who is not actively employed and in MLC's opinion would have been absent from their previous or any similar occupation solely through Injury or Illness for a period of six consecutive months and after which time the Member has in MLC's opinion, after consideration of all evidence obtained, suffered a total irreversible inability to perform at least two of the Activities of Daily Living.
(e)a Member who's [sic] occupation is classified as “Home Duties”: having been incapacitated through Injury or Illness for six consecutive months and after which time the Member is rendered in MLC's opinion, after consideration of all evidence obtained, unable to ever again attend to any normal physical domestic household duties.
Paragraphs (b) to (e) of the Sixth Schedule TPD definition are subject to the same rider as the relevant paragraphs of the First Schedule TPD definition, namely :
Where it can be clearly established to MLC’s satisfaction that the Member is Totally and Permanently Disabled MLC may pay at MLC’s discretion the Sum Insured before the end of the six consecutive month’s period of absence from their Occupation.
Paragraph (d) of the definition is the TPD definition against which Mr Daffy’s claim for a TPD benefit was assessed, and rejected, by MLC.
Part 7 of the Sixth Schedule contains a statement that the continuation option (see cl 6 and cl 14 of the policy) is ‘not included’.
The decision at first instance
The judge commenced his analysis by dealing with MLC’s contention that, upon the termination of Mr Daffy’s employment on 24 May 2011, Mr Daffy was transferred from the First Schedule to the Sixth Schedule of the policy. The judge noted that if cl 27.1(e) was read literally, its effect would be to prevent a member who had ceased employment with a participating employer from receiving the benefits prescribed by the Sixth Schedule, and that this result could not sit with the eligibility conditions contained in Part 2 of the Sixth Schedule because the Sixth Schedule provides for an automatic rollover for insured members who have left the employment of a participating employer and who have not elected to cease their insurance cover under the policy. As the judge put it:
If cl 27.1(e) is read literally, the Sixth Schedule is inutile. On the other hand, the terms of the Sixth Schedule manifest an objective intention that an existing insured Member who was covered under the First Schedule, and who has left the employment of a Participating Employer, and who has not elected to cease their insurance cover under the Policy, will be covered by the Sixth Schedule immediately upon cessation of employment. It is necessary to give effect to this objective intention. This outcome can be achieved by reading cl 27.1(e) as subject to and qualified by the Sixth Schedule. Upon termination of employment, a First Schedule Member is automatically covered by the Sixth Schedule. This construction, although inconsistent with a literal reading of cl 27.1(e), is preferable because it ensures the congruent operation of the various components of the contract as a whole.[10]
[10]Ibid [137] (citations omitted).
Having concluded that Mr Daffy was transferred to the Sixth Schedule when his employment was terminated (which conclusion is the subject of the second of the two grounds of Mr Daffy’s notice of contention), the judge then went on to deal with the question whether Mr Daffy’s TPD claim fell to be assessed by the criteria prescribed by the First Schedule, or by the criteria prescribed by the Sixth Schedule. The judge said that the resolution of that issue turned upon the meaning of the opening words of cl 27.1.[11] The judge determined that the words ‘MLC’s liability to pay any Benefits which have not already accrued in respect of a Member shall cease on the occurrence of [a defined event]’ manifested an objective intention to exempt from the operation of cl 27.1 MLC’s liability to pay any Benefits which had already accrued prior to the occurrence of the prescribed event.[12]
[11]Ibid [138].
[12]Ibid [139].
The judge, after further analysis, then concluded that the right to make a TPD claim (or a disability benefit claim) under the First Schedule of the policy, in respect of an illness or injury which occurred prior to the cessation of a member’s employment with a participating employer, was an accrued benefit that was exempt from the operation of cl 27.1.[13]
[13]Ibid [140]–[170].
Specifically, the judge said:
‘Benefit’ is a defined term. It means ‘any benefit payable under this Policy’. The defendants correctly contend ‘the word payable means “due and immediately payable”’. As defined, a ‘Benefit’ is a benefit which has already accrued because it is due and immediately payable. Thus, the phrase ‘MLC’s liability to pay any Benefits which have not already accrued’ means: ‘MLC’s liability to pay any accrued benefits which have not already accrued’. The preamble to cl 27.1 is internally inconsistent. As defined, there can never be a ‘Benefit’ which has not already accrued. As defined, a Benefit is an accrued benefit.
The consequence of using the defined term ‘Benefit’ in the preamble to cl 27.1 is that the intended exemption to the operation of cl 27.1 can never have any work to do. To give effect to the objective intention of the contracting parties the words ‘which have not already accrued’ must qualify benefits which have not yet, but which may become, due and payable.
This construction of cl 27.1 is consistent with cl 25.1 of the Policy which provides:
The Policy Holder must notify MLC in writing as soon as is reasonably practicable after it has received notice from the Member of an event entitling the Policy Holder to a Benefit.
‘Policy Holder’ is a defined term. It means the first defendant, MLC Nominees Pty Ltd. ‘Benefit’ means ‘any benefit payable under this Policy’. In the case of a TPD benefit the relevant event entitling the first defendant to payment of the TPD Benefit is the formation by MLC of the requisite opinion under the First or Sixth Schedule. It is nonsensical that MLC Nominees Pty Ltd would provide notice to MLC of the formation by MLC of the requisite opinion entitling MLC Nominees to payment of a TPD Benefit. Clause 25.1 only makes sense if ‘Benefit’ is read as ‘benefit’ ie. a payment which MLC may, but has not yet, become liable to make. Thus, the reference to ‘notice from the Member of an event entitling the Policy Holder to a Benefit’ is a reference to the claim form submitted by the Member. The ‘event’ is the disabling event of illness/injury which gives rise to the claim.[14]
[14]Ibid [139]–[141] (citations omitted).
The judge then referred to passages in Darlington Futures Ltd v Delco Australia Pty Ltd[15] and Australian Casualty Co Ltd v Federico,[16] dealing with the principles governing the interpretation of exclusion clauses and policies of insurance,[17] before saying:
If an exclusion clause is reasonably open to two competing constructions, the preferred construction is the one that avoids ‘capricious, unreasonable, inconvenient or unjust’ consequences. The preamble of cl 27.1 manifests an objective intention of the contracting parties to create an exemption from the operation of cl 27.1 in respect of benefits that have accrued. However, the consequence of the use of the defined term ‘Benefit’ is that no exemption has in fact been created. The alternative construction is for cl 27.1 to be read as using the lowercase ‘benefit’ in lieu of the defined term, ‘Benefit’. This construction is to be preferred. It is consistent with the objective intention of the contracting parties that the exemption will have work to do.[18]
[15](1986) 161 CLR 500 (‘Darlington Futures Ltd’).
[16](1986) 160 CLR 513 (‘Australian Casualty’).
[17]Darlington Futures Ltd (1986) 161 CLR 500, 510; Australian Casualty (1986) 160 CLR 513, 520.
[18]Reasons [144].
The judge then dealt with the provisions of the policy concerning disability benefits,[19] observing that, if MLC’s construction of the policy was to be accepted then MLC had no liability to pay the disability benefits that it in fact paid to Mr Daffy.
[19]Ibid [152]–[163].
Next, under the heading ‘The Purpose of the Policy’ the judge said:
The purpose of the policy is to provide benefits, including Disability and TPD benefits, to an Insured Member who has suffered an illness or injury. In the case of a First Schedule Member the illness/injury must occur whilst the Member is employed by a Participating Employer. The defendants correctly submitted:
In identifying that purpose, the appropriate starting point is to recognise that the Policy operates in respect of a Member of a superannuation fund (being the Fund). The plaintiff became a Member of the Fund on the nomination of his employer. His “Member Package” was MKBS (incorporating MKPS Personal Super).
As the plaintiff explained, he became a member of the Fund, as part of a superannuation scheme established for all salaried employees of Southern Star.
The defendants correctly point out that a purpose of the Policy is to provide insurance cover as an incident of the employment relationship between Member and Participating Employer. This is not in dispute. What is controversial is the effect of termination of a First Schedule Member’s employment. The purpose of providing Disability and TPD insurance cover to an employee of a Participating Employer is more readily achieved when a First Schedule Member is entitled to make a claim for Disability and TPD benefits in respect of a disabling event of illness/injury notwithstanding cessation of employment prior to MLC forming the requisite opinion. The defendants concede that the right of a First Schedule Member to claim a Disability Benefit survives termination of employment, notwithstanding MLC has not formed the requisite opinion. There is no rational reason for reaching a different conclusion in respect of the right of a First Schedule Member to make a TPD claim.
The consequence of termination of employment of a First Schedule Member is that he/she is automatically transferred to the Sixth Schedule. There are no Disability benefits under the Sixth Schedule. The criteria in the Sixth Schedule for assessing MLC’s liability to pay a TPD claim are significantly more onerous then under the First Schedule. The preamble to cl 27.1 manifests an intention to exempt from the operation of cl 27.1(e) a benefit which has not yet, but may become payable upon MLC forming the requisite opinion. Where the illness/injury which is the basis for the claim has occurred whilst the Member is an employee of a Participating Employer and therefore covered by the First Schedule, the right to have a claim for Disability and TPD benefits determined in accordance with the criteria extant at the time of the illness/injury is consistent with the purpose of the Policy. The Disability Benefit is income protection insurance. It is described as such in the annual statements provided to Mr Daffy by the defendants. Plainly, a circumstance in which an individual has a need for income protection is where he/she has lost their job.
Mr Daffy’s right to make a Salary Continuance Benefit claim and a TPD claim and have those claims determined in accordance with the First Schedule is a benefit which had accrued prior to the termination of his employment on 24 May 2011. They were benefits which had not yet, but might become, due and payable if MLC formed the requisite opinion under the definition of Disability (in respect of the Disability Benefit claim) and cl 6(b) of the First Schedule TPD definition (in respect of the TPD claim).
I have concluded that it is the occurrence of the disabling event of illness/injury which is critical to determining whether a Member has an accrued benefit preserved by cl 27.1. This approach is supported by that part of the definition of TPD in the First Schedule which confers a discretion on MLC to make a TPD payment prior to the expiration of a period of six month’s continuous absence.[20]
[20]Ibid [164]–[168] (citations omitted).
The judge, having concluded that the First Schedule definition of TPD applied to Mr Daffy’s TPD claim, then analysed whether, on the evidence, Mr Daffy satisfied that definition. His Honour concluded that Mr Daffy satisfied paragraph (b) of the First Schedule definition (absent from his usual occupation as general manager for six consecutive months solely through injury from late July 2011, and being incapacitated to such an extent as to render him unlikely to ever engage in any gainful employment for which he was reasonably qualified at the end of that six months).
It followed from the judge’s conclusions about the construction of cl 27.1 of the policy, and his conclusion that Mr Daffy had satisfied the TPD criteria prescribed in the First Schedule, that Mr Daffy’s claim for a TPD benefit, to which he was entitled, in respect of the injury which occurred prior to the cessation of his employment, was an accrued benefit that was exempt from the operation of cl 27.1 of the policy. Mr Daffy was thus held entitled to recover the TPD benefit claimed by him. As the judge put it:
The injury which gave rise to Mr Daffy’s entitlement to make a TPD claim occurred on 14 October 2010, whilst he was covered by the First Schedule. Any First Schedule Member who sustains injury or illness has the right to make a TPD claim forthwith and to have that claim determined in accordance with the First Schedule. Clause 6 of the First Schedule relevantly provides: ‘Where it can be clearly established to MLC’s satisfaction that the Member is Totally and Permanently Disabled MLC may pay at MLC’s discretion the Sum Insured before the end of the six consecutive month’s period of absence from their Occupation’. If MLC is satisfied that the Member is unlikely to engage in any gainful profession, trade or occupation for which the Member is reasonably qualified, MLC has a discretion to pay the TPD Benefit forthwith. A corollary of this discretion is that a First Schedule Member has a right to submit a claim as soon as the disabling event of Injury or Illness occurs, to enable MLC to consider exercising its discretion under the First Schedule to make a payment prior to the expiration of the six month’s period of absence.[21]
[21]Ibid [169].
Having identified the construction of cl 27.1 of the policy that he accepted, the judge then said of this construction:
The construction set out above gives effect to the objective intention of the contracting parties that upon cessation of a First Schedule Member’s employment with a Participating Employer, he/she is automatically transferred to the Sixth Schedule. However, it also gives effect to the objective intention reflected in the preamble to cl 27.1 that benefits accrued by a Member whilst employed by a Participating Employer are not extinguished. This construction avoids the significant prejudice which would be visited upon a First Schedule Member with a right to make a claim for a Disability benefit and/or a TPD claim who is automatically transferred to the Sixth Schedule as a result of termination of employment with a Participating Employer. In the case of a Disability Benefit, absent preservation of the right to make a claim in accordance with the First Schedule, the right will be extinguished because there is no corresponding right under the Sixth Schedule. In the case of a TPD benefit, the criteria applicable to Mr Daffy’s claim under the Sixth Schedule are of a fundamentally different and more onerous character. Where the disabling event giving rise to a Member’s entitlement to make a claim occurs whilst he/she is an employee of a Participating Employer, it is unlikely that the contracting parties intended to cause such significant prejudice to a First Schedule Member as a consequence of the termination of his/her employment. Further, this outcome is not consistent with the purpose of providing Disability and TPD insurance in respect of disabling events of illness/injury which occur whilst a Member is employed by a Participating Employer.
The construction set out above is reached by applying the principles in Australian Casualty and Darlington Futures Ltd referred to above. In addition to the application of those principles, in circumstances where the preamble to cl 27.1 is ambiguous, it is permissible to deploy the contra proferentem maxim to assist the resolution of the ambiguity created by the use of the defined term of ‘Benefit’ in the preamble. Given the inherent ambiguity of the preamble, a construction which benefits Mr Daffy by preserving his right to make Disability Benefit and TPD claims and have those claims determined in accordance with the criteria in the definition of Disability and the First Schedule TPD definition is preferable to a construction which would extinguish that right (in the case of a Disability Benefit), and impose significantly more onerous criteria (in the case of the TPD claim).[22]
[22]Ibid [171]–[172].
Finally, the judge dealt with an alternative basis upon which Mr Daffy put his case at trial, namely that he was absent from his occupation as general manager solely through injury for six consecutive months commencing 20 May 2011. The judge rejected this basis for Mr Daffy’s claim, concluding that Mr Daffy ‘would probably have continued to attend at work for a short period of time post 24 May 2011 had his employment not been terminated’.[23] It is this finding which is the subject of the first of the two grounds of Mr Daffy’s notice of contention.
[23]Ibid [237].
MLC’s contentions
MLC submits that the judge was correct when he determined that Mr Daffy was transferred from the First Schedule to the Sixth Schedule upon the termination of his employment on 24 May 2011. It was then submitted that, having found that Mr Daffy’s cover did not cease upon the termination of his employment, and that he was transferred to the Sixth Schedule, the judge should have simply applied the Sixth Schedule definition of TPD to Mr Daffy’s claim, and held that cl 27.1 of the policy was irrelevant.
If, however, cl 27.1 of the policy was relevant to the resolution of Mr Daffy’s claim, then it was submitted that the judge’s construction of that clause was erroneous and that there was no relevant benefit that had accrued under the policy at the time of the termination of Mr Daffy’s employment. The judge’s construction of cl 27.1 was said to be wrong for ‘at least’ the following nine reasons:
1. The judge’s construction failed to apply the policy definition of the defined term ‘Benefits’ and instead, impermissibly, substituted a different definition for that word.
2. Insofar as the judge’s construction was founded on the proposition that unless cl 27.1 was construed as applying to something more than ‘Benefits’ as defined by the policy it could never have any work to do,[24] the judge was wrong because the clause had ‘obvious’ work to do in preserving a claimant’s entitlement to be paid money in circumstances where the liability to pay had accrued but where the money had not yet been paid at the time of termination. A salary continuance benefit, payable monthly in arrears, is an example of a benefit that might have accrued but not been paid.[25]
[24]Reasons [140], [144].
[25]See pt 5 of the First Schedule.
3. The judge ‘paid insufficient attention to the language used in the policy’. Specifically, it was said that the judge ignored the word ‘payable’ as referable to a debt, and not — as his Honour found — to an inchoate potential right.
4. The statement by the judge that his construction ‘gives effect to the objective intention reflected in the preamble to cl 27.1 that benefits accrued by a member whilst employed by a participating employer are not extinguished’, begged the question, and was not a construction grounded in the words of the policy.
5. The judge’s reference to a contra proferentem construction was not well founded. Specifically, it was submitted that the judge ‘failed to identify any ambiguity that might trigger recourse to the doctrine’.
6. The judge’s construction ‘required other parts of the policy, in effect, to be rewritten’. In support of this submission, reference was made to the definition of ‘Occupation’ and the use of this term in paragraph (b) of the TPD definition in the First Schedule.
7. The judge erred in treating the policy as one that provided cover in respect of defined events (akin to trauma insurance), rather than as a policy of TPD insurance which was concerned with incapacity and disability. Contrary to the judge’s reasoning,[26] cl 4.1 made it clear that the policy relevantly provided a benefit where a member suffered TPD, not upon the happening of an insured ‘event’.
8. The trial judge did not ‘clearly identify what accrued benefit he regarded Mr Daffy as having at the cessation of his employment’. The judge’s reasoning[27] conflated a ‘Benefit’ with a right to make a TPD claim and to have that claim assessed. In support of this submission it was contended by MLC that it was a complete answer to the judge’s approach to recognise that had Mr Daffy exercised the ‘right’ to make a TPD claim in October 2010 then his claim would have been refused because he was not totally and permanently disabled at that time (a proposition which it is said the judge implicitly accepted at [235]–[237] of his reasons for judgment).
9. The effect of the judge’s construction was that from the cessation of his employment, Mr Daffy was covered by two schedules, ‘each with different and mutually exclusive definitions of TPD, the application of which depends upon a finding as to when the event that gives rise to an injury or illness (which ultimately becomes disabling) first occurred’. There was, however, nothing in the policy to suggest that a member could be simultaneously covered by both the First and Sixth Schedules, and the contrary was made clear by the eligibility conditions of the Sixth Schedule, which provided that the Sixth Schedule applies to members who were covered by the First Schedule. The judge’s construction made the policy unworkable in a number of circumstances: for example, where there was a combination of injuries or illnesses that resulted in incapacity and disability, and not all of those injuries or illnesses arose out of an event that occurred before the cessation of employment.
[26]Reasons [168], [193].
[27]Ibid [169].
In addition to these submissions, MLC submitted that the judge’s construction ‘also created other intractable problems’. It was submitted that, for example, the judge’s construction might result in a benefit becoming payable years after the date on which a member reached the maximum insurable age or where the time for payment of premiums had expired or where another benefit had already been paid.
In argument, counsel for MLC conceded that, on MLC’s construction of the policy, MLC was not obliged to pay Mr Daffy the disability benefits that it in fact paid to him in response to the claim he made in September 2011.[28] While, at trial, MLC had sought to reconcile the payment of disability benefits to Mr Daffy with its construction of the policy,[29] before us MLC abandoned that attempt.
[28]Cf Reasons [152]–[163].
[29]Ibid [162].
Mr Daffy’s contentions
In this Court, Mr Daffy sought to support the judge’s reasoning. To the extent necessary, Mr Daffy also sought to contend that he was not transferred to the Sixth Schedule upon the termination of his employment and, in any event, the judge should also have found that he was absent from his occupation as general manager solely through injury or illness for six consecutive months commencing on 20 May 2011 (four days before the termination of his employment).
As to Mr Daffy’s contention that he was not transferred from the First Schedule to the Sixth Schedule, Mr Daffy noted that no such ‘transfer’ had ever been recorded as taking place and that it was common ground at trial that he had always been, and remained, identified as a member of the ‘MKBS Package’ (ie the First Schedule) and not the ‘MKPS Package’ (ie the Sixth Schedule). This, it was submitted, was also made clear from MLC’s final submissions filed at trial.
In support of Mr Daffy’s submission that he had an accrued benefit at the termination of his employment, Mr Daffy referred to the now unchallenged findings of fact made by the judge, concerning events that all occurred while Mr Daffy was covered under the First Schedule, namely:
(a) Mr Daffy suffered a prolapsed disc at work on 14 October 2010 while lifting a large sliding door;
(b) later that night Mr Daffy was taken to hospital by ambulance experiencing incandescent pain;
(c) after four days in hospital, Mr Daffy was absent from work for approximately four weeks;
(d) Mr Daffy returned to work in mid-November 2010, but was significantly restricted in the range of duties he performed and the number of hours he worked;
(e) when Mr Daffy returned to work, he was consistently suffering varying degrees of pain, and required a new workstation, so that he could stand at his desk and work, because he was unable to sit;
(f) post November 2010, Mr Daffy was consuming large quantities of over the counter painkillers; and
(g) Mr Daffy stopped work on 20 May 2011, and did not return thereafter.[30]
[30]Ibid [1], [56]–[57], [63], [66], [77]–[85].
Mr Daffy submitted that MLC’s construction of cl 27.1 would give no work to the words ‘Benefits’ which have not already accrued. As it was put in Mr Daffy’s written case:
The applicants argue, in effect, that the term ‘Benefits’ means benefits which have completely accrued, ie, that are due and payable. Therefore, there can be no such thing as a ‘Benefit which has not already accrued’, and the liability to pay such things which clause 27.1 purports to affect or extinguish is a non-existent liability. Thus, pursuing the applicants’ contention to its end, clause 27.1 affects and/or extinguishes nothing.
His Honour’s reasoning regarding the true meaning of the word ‘benefits’ (albeit capitalised in the policy) is confirmed by the reference in the policy to a ‘Benefit’ in clause 25.1; the absurdity of construing ‘Benefit’ in its defined sense in that clause is well demonstrated at paragraph [141] of the Reasons.
As part of his submissions, Mr Daffy observed that in order to obtain a TPD benefit a claimant must relevantly:
(h) suffer injury or illness;
(i) be absent from employment for six months;
(j) submit a claim;
(k) undergo assessment of such claim, which process includes the obtaining of appropriate evidence; and
(l) obtain a favourable opinion from MLC (the insurer) regarding the claimant’s future incapacity.
All of this, it was submitted is a process which takes a significant time. As Mr Daffy then put it:
[MLC’s] argument requires that if employment with a participating employer has ceased at any time prior to the completion of [this process], the entitlement of the claimant is to be assessed under Schedule Six. The absurdity and injustice of this proposition is illuminated by contemplation of the obvious fact that a claimant must be, throughout the incapacity/claims process, by definition seriously incapacitated and likely to remain so, and therefore there would be little point in a claimant’s employer keeping the employment arrangement active. The injustice of this outcome was accepted by his Honour at Reasons [221]–[222]. His Honour’s consideration of this injustice accords with the approach taken in Finch.
In Finch,[31] the High Court[32] referred to a construction of a TPD policy posited by a trustee as leading to potential results which were so unjust as to suggest an error in the reasoning that led to them.[33] Mr Daffy submitted that the requirements of the TPD definition in the Sixth Schedule being ‘far more onerous’ than the requirements of the TPD definition in the First Schedule, a construction that transferred a member from the First Schedule to the Sixth Schedule at any time during the period from injury until acceptance of the claim was so unjust as to suggest error in the reasoning process that led to such a construction.
[31]Finch v Telstra Super Pty Ltd (2010) 242 CLR 254 (‘Finch’).
[32]French CJ, Gummow, Heydon, Crennan and Bell JJ.
[33]Finch (2010) 242 CLR 254, 265 [15].
In oral argument, counsel for Mr Daffy referred us to the first instance decision of Galaxy Homes Pty Ltd v National Mutual Life Association of Australasia Ltd,[34] and the appeal judgment in that case that upheld the primary judge’s reasoning at first instance.[35] The Galaxy Homes decisions were relied upon by Mr Daffy to support the proposition that, at the very least, the fact that a necessary opinion was not formed by an insurer prior to the termination of an insurance contract may not prevent an insured from making a claim after the termination of the policy, notwithstanding a clause of the policy that provided that when the policy was terminated an insured could no longer make any claim under it.
[34][2012] SASC 141.
[35]Galaxy Homes Pty Ltd v National Mutual Life Association of Australasia Ltd [No 2] [2013] SASCFC 66.
Analysis
This case involves a pure question of construction: specifically, the proper construction of cl 27.1(e) of the policy. Notwithstanding that MLC continued to take premium from Mr Daffy’s superannuation account as if he was covered by the First Schedule of the policy after his employment was terminated, Mr Daffy did not pursue at trial (or in this Court) any claim in contract founded on some implied or collateral agreement brought into existence by facts that occurred when or after his employment with SSDW was terminated. Similarly, while a claim based upon an alleged estoppel was initially pursued at trial, it was ultimately abandoned. Equally, there was no attempt at trial made by Mr Daffy to mount a claim based on waiver of any of the terms of the policy.[36] Mr Daffy’s case was that on the proper construction of the policy he was entitled to the TPD benefit provided in the First Schedule.
[36]Either cl 27.1(e) or possibly some of the requirements of clause 6.
As has been said before, a policy of insurance is a commercial contract and should be given a businesslike interpretation. Interpreting a policy of insurance (like any other 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.[37] That said, it has been recognised that, in cases of ambiguity, a ‘liberal approach’ will generally be adopted in the construction of insurance contracts.[38] This does not mean, however, that a court can attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties. As was said by Kirby J in McCann:
Maxims and rules of construction, developed as tools to aid the task of interpretation, are subordinate to the primary duty, which is to uphold the contract between the parties.[39]
[37]McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 589 [22] (‘McCann’); Intergraph Best (Vic) Pty Ltd v QBE Insurance Ltd (2005) 11 VR 548 [27]; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656-7 [35].
[38]McCann (2000) 203 CLR 579, 602 [74].
[39]Ibid 601 [74].
The meaning of ‘Benefits’ in cl 27.1
The judge determined that a ‘Benefit’ is a benefit which has already accrued because it is due and immediately payable. Thus, his Honour held that the phrase ‘MLC’s liability to pay any benefits which have not already accrued’ meant ‘MLC’s liability to pay any accrued benefits which have not already accrued’.[40] The judge then concluded that this was internally inconsistent and that the preamble to cl 27.1 could never have any work to do.[41] The judge resolved this problem by reference to cl 25.1 of the policy, which he said only made sense if ‘Benefit’ in that clause was read as ‘benefit’, that is, a payment which MLC may, but has not yet, become liable to make.[42]
[40]Reasons [139].
[41]Ibid [140].
[42]Ibid [141].
On this basis the judge held that Mr Daffy’s right to make a TPD claim and have it determined in accordance with the First Schedule was a benefit which had accrued before his employment was terminated. The TPD benefit was a benefit ‘which had not yet, but might become, due and payable if MLC formed the requisite opinion [under the relevant TPD definition]’.[43] However, with respect to the judge’s detailed analysis, to the extent that the judge construed ‘Benefits which have not already accrued’ as encompassing the ‘benefit’ of being able to make a claim, that construction must be rejected. First, such a construction is contrary to the use of the words ‘Benefit’ and ‘benefit’ in the policy. Nowhere in the policy is there reference to some benefit of being able to make a claim. Moreover, one might query what ‘benefit’ there is in making a claim that would (or perhaps must) be rejected under the terms of the policy.
[43]Ibid [167].
Secondly, to talk of the accrual of a benefit to make a claim (which claim may or may not be rejected) would do unacceptable violence to the language of cl 27.1, which refers to the liability of MLC ‘to pay any Benefits’. Even if an ability to make a claim might ‘accrue’, it does not make sense to speak of a liability to pay an ability to make a claim.
Thirdly, a construction of ‘Benefits which have not already accrued’ in cl 27.1 as encompassing benefits that have not been paid but may be payable under the policy, contrary to the judge’s analysis, gives cl 27.1 relevant work to do. Benefits under the policy that have accrued but have (for whatever reason) not yet been paid are exempted from the cessation of MLC’s liability to pay benefits under the policy.
It follows that the determinative question in this proceeding is whether the TPD benefit claimed by Mr Daffy on 29 May 2012 was a benefit that had already accrued at the time his employment was terminated on 24 May 2011.
The construction of ‘accrued’
The parties’ competing positions on the issue of accrual may be summarised as follows. MLC contends that a TPD benefit is not an accrued benefit until all elements of the relevant TPD definition are satisfied. So, MLC contends, Mr Daffy’s TPD benefit was not an accrued benefit on 24 May 2011 because he had not been absent from his occupation for six consecutive months and MLC had not formed the opinion required under paragraph (b) of the TPD definition in the First Schedule.
On the other hand, Mr Daffy contends that a TPD benefit accrues upon the happening of the injury which is the foundation for the subsequent TPD claim. So, Mr Daffy contends, his TPD benefit accrued on 14 October 2010 when he injured himself lifting the heavy sliding door. In the alternative, Mr Daffy contends that, if a First Schedule TPD benefit does not accrue at the time of the original injury, then it accrues once the six-month period, referred to in paragraph (b) of the First Schedule TPD definition, has commenced. On this alternative construction, and in reliance upon his notice of contention, Mr Daffy contends that a First Schedule TPD benefit accrued to him on 20 May 2011 (four days before the termination of his employment).
Paragraph (b) of the TPD definition in the First Schedule requires a member to be absent from their Occupation solely through Injury or Illness. While Injury is defined to mean bodily injury that is caused by accidental means, Illness is defined to mean a sickness, disease or disorder. Paragraph (b) of the TPD definition does not require there to be some specified physical, or physiological, event to have occurred before it can operate.
In Galaxy Homes, the primary judge and the South Australian Full Court concluded, in respect of different policy language, that a claimable event (in that case ‘terminal illness’) occurred prior to the cancellation of the relevant policy.
In the policy construed in Galaxy Homes, the expression ‘terminal illness’ was defined to mean:
[A]ny 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.
At first instance (and again on appeal) the words ‘which, in our opinion …’ were read as adjectival — describing the type of illness that would qualify under the policy. Thus, it was held that the insurer’s opinion did not have to be formed prior to the cancellation of the policy.
MLC submitted that Galaxy Homes was distinguishable on two bases. First, unlike the policy in the present case, Galaxy Homes concerned an events based policy. Secondly, MLC submitted that the conjunctive ‘and’ appearing after the words ‘six consecutive months’ in paragraph (b) of the First Schedule TPD definition (which conjunction was not contained in the Galaxy Homes policy) meant that the opinion part of paragraph (b) of the TPD definition in the First Schedule could not be read merely as adjectival: it was an essential element of the definition.
Strictly speaking, it is not necessary for us to determine in the present case whether a TPD benefit could (or should) be held to have accrued prior to MLC forming the requisite opinion. On any view of the facts, the ‘six consecutive months’ period referred to in paragraph (b) had not elapsed (or occurred) prior to the termination of Mr Daffy’s employment. On the judge’s findings, that period did not commence until sometime after the termination of Mr Daffy’s employment. Moreover, and in any event, on Mr Daffy’s notice of contention, only four days of the requisite six month period had elapsed at the time of his termination.
It was not suggested by Mr Daffy that the word ‘accrued’ should be given other than its ordinary meaning.[44] Rather, it was submitted that to accept a construction other than that posited by Mr Daffy would lead to potential results which were so unjust as to suggest an error in the reasoning that led to them.[45]
[44]Cf In Re Sneyd [1961] 1 WLR 575, 579.
[45]Cf Finch (2010) 242 CLR 254, 265 [15].
Mr Daffy accepted that the policy provided a mechanism for the ‘transfer’ of members to the Sixth Schedule upon the termination of their employment with a participating employer. The injustice Mr Daffy alleged concerned the likely different outcomes of the treatment of his TPD claim under the First Schedule definition (if a relevant benefit had accrued) as compared to its treatment under the Sixth Schedule definition (if there was no accrued benefit). Specifically, under the Sixth Schedule, the member, in addition to having to establish an absence from an occupation solely through injury or illness for a period of six consecutive months, also has to establish that he or she has suffered ‘a total irreversible inability to perform at least two of the Activities of Daily Living’.
No doubt this additional requirement is not one that is easily satisfied, even for a person absent from his or her occupation solely through injury or illness for a period of six consecutive months. That, however, is not a sufficient basis upon which one might torture the language of cl 27.1 of the policy so as to hold that in a particular case of injury, a TPD benefit that might subsequently be payable (and paid) under the policy is an accrued benefit at the time of injury, and no matter what part any such injury might ultimately be found to play in any subsequently determined disability. That would deny the requirement in the First Schedule and the Sixth Schedule that the member had been absent from an occupation for six consecutive months. While Mr Daffy pointed to ways in which that requirement could easily work unfairness, it cannot simply be ignored.
Further, the construction primarily contended for by Mr Daffy cannot have universal application. A person who might ultimately satisfy paragraph (b) of the First Schedule TPD definition may not be able to point to any date upon which it might be contended that a disorder[46] first commenced or came into existence. Moreover, such injustice as might be capable of being inferred from the termination of a member’s employment with a participating employer at some time during the six consecutive month period equally cannot be a ground for giving the policy (and in particular cl 27.1) a construction which its text will not bear. In that regard, there are parallels between the present case and the decision of McLelland J in Rapa v Patience,[47] cited with approval by the High Court in Finch.[48] It is to be remembered that in Rapa, the relevant period of absence from employment was held, in accordance with the words of the policy in that case, to be the period of absence from the employment of the identified employer (which period necessarily terminated upon the cessation of that employment).[49]
[46]Cf the definition of ‘Illness’ in the policy.
[47]Unreported, Supreme Court of New South Wales, 4 April 1985 (‘Rapa’).
[48](2010) 242 CLR 254, 267–8 [23].
[49]Rapa, 9-10.
In support of his submission that a First Schedule TPD benefit could accrue within the meaning of cl 27.1 before the expiration of the six consecutive month period, Mr Daffy relied upon the discretion referred to at the end of the First Schedule TPD definition:
Where it can be clearly established to MLC’s satisfaction that the Member is Totally and Permanently Disabled MLC may pay at MLC’s discretion the Sum Insured before the end of the six consecutive months’ period of absence from their Occupation.
Undoubtedly, MLC has a discretion under the policy to accept a TPD claim (and pay the TPD benefit) prior to the end of the six consecutive month period. In the event that the discretion is exercised favourably in a particular case, the TPD benefit could properly be described as having accrued for the purposes of the operation of cl 27.1. That is not to say, however, that the mere existence of a discretion that has not been exercised in a member’s favour results in a TPD benefit accruing prior to the satisfaction by the member of the relevant elements of the definition.
It follows that, putting to one side the issues raised by Mr Daffy’s notice of contention, the judge erred in concluding that there existed a relevant accrued benefit as at the termination of Mr Daffy’s employment. The First Schedule TPD benefit that was required, by cl 27.1 of the policy, to be accrued at the time of Mr Daffy’s termination was not a benefit that had accrued within the meaning of cl 27.1 of the policy.
Notice of contention: the contention that the six month period should have been held to commence on 20 May 2011
The judge concluded that Mr Daffy was absent from his usual occupation as general manager for six consecutive months solely through injury from late July 2011.[50] In his notice of contention, Mr Daffy seeks to challenge that finding, submitting that the judge should have found that he was absent from his usual occupation as general manager for six consecutive months solely through injury from 20 May 2011. Having regard to what we have already said about the construction of cl 27.1 of the policy and how that clause operates in respect of Mr Daffy’s TPD claim, it is, strictly speaking, not necessary to consider Mr Daffy’s contention. That said, there is no substance in the contention that the judge should have held that the six consecutive month period commenced on 20 May 2011.
[50]Reasons [5].
The judge considered Mr Daffy’s evidence, the evidence of the lay witnesses and the medical evidence in considerable detail before coming to the conclusion that the six month period commenced in late July 2011.[51] Having given detailed consideration to this evidence, the judge said:
I have referred earlier in this judgment to the evidence of Mr Daffy that as at 20 May 2011 he was having a lot of trouble with his back and was beside himself as to what he was going to do. This evidence is corroborated by Mrs Daffy. I accept the evidence of both Mr and Mrs Daffy on this point. This evidence supports a conclusion that as at 20 May 2011, Mr Daffy was nearing the end of his tether. He had for the previous six months been attending work, albeit on a restricted basis and struggling with significant pain. As well as the physical difficulties he was encountering, he was also suffering significant mental health issues as disclosed in the reports of Mr McIntosh.
Notwithstanding these findings, the evidence does not support a finding that if his employment had not been terminated on 24 May 2011, Mr Daffy would not have returned to work at any time in the following six months. Mr Daffy did not give direct evidence that he would not have returned to work post 24 May 2011 if his employment had not been terminated. I have concluded that Mr Daffy would probably have continued to attend at work for a short period of time post 24 May 2011 had his employment not been terminated. The evidence of Mr Smith to which I refer below supports a finding that Mr Daffy’s physical condition deteriorated in the few months leading up to 26 July 2011. By 26 July 2011, Mr Daffy would not have been able to attend at work, irrespective of whether his employment had been terminated.[52]
[51]Ibid [41], [43], [45]–[85], [234]–[237].
[52]Ibid [236]–[237].
In argument, counsel for Mr Daffy sought to attack the judge’s conclusions by reference to evidence given by Mr Daffy that was not specifically referred to by the judge. Similarly, counsel for MLC sought to defend the judge’s conclusions by reference to other evidence also not referred to by the judge. Given the amount of evidence called at trial that was capable of bearing on the question of when Mr Daffy’s relevant inability to work commenced, it was not possible for the judge to refer to every piece of evidence called and tendered at trial. It is sufficient to say that, far from being ‘glaringly improbable’ or ‘contrary to compelling inferences’ or demonstrated to be wrong by ‘incontrovertible facts or uncontested testimony’,[53] the judge’s conclusion was well open to him having regard to the chronology, the events of 24 May 2011 and Mr Daffy’s lack of medical treatment between early November 2010 and late July 2011.
[53]Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679, 686–7 [43] (‘Robinson Helicopter’).
It follows that paragraph 1 of Mr Daffy’s notice of contention must be rejected.
Notice of contention: the contention that Mr Daffy was not transferred to the Sixth Schedule on 24 May 2011
Again, having regard to the conclusions we have reached concerning the construction and operation of cl 27.1 of the policy, nothing turns upon Mr Daffy’s contention that he was not in fact transferred to the Sixth Schedule on 24 May 2011. That said, there is, again, nothing in Mr Daffy’s contention.
Mr Daffy submitted that he was not transferred to the Sixth Schedule at any time because there was no compliance with the last paragraph of the eligibility conditions in pt 2 of the First Schedule. That paragraph provides:
The Policy Holder must notify MLC within 30 days if a Member changes the nature of their Employment with the Participating Employer. In such an event MLC will advise the Policy Holder in writing of any changes to the Member’s insurance cover and any revised premium applicable or whether the Member’s cover ceases under this Policy in accordance with cl 27.1(n).
Clause 27.1(n) of the policy provides:
Notwithstanding any other provision contained in this Policy, MLC’s liability to pay any Benefits which have not already accrued in respect of a Member shall cease on the occurrence of the earlier of any of the following events:
…
(n)the date the Member no longer conforms to the eligibility conditions (including, where applicable, the nature of their Employment) that are listed in the applicable Schedule or that are agreed to in writing by MLC from time to time.
Mr Daffy submitted that the last paragraph of the eligibility conditions in pt 2 of the First Schedule required the policy holder (MLC Nominees Pty Ltd) to notify MLC that his employment with SSDW was terminated, so that MLC could advise the policy holder in writing of changes to his insurance cover and any revised premium. No notice was given and Mr Daffy contends that, therefore, he remained a First Schedule member.
That submission must be rejected. First, cl 27.1 operates on its own terms without requiring any particular notice to be given.
Secondly, Mr Daffy’s termination was not a change in the nature of his employment with SSDW as described in cl 27.1(n), it was the termination of that employment as referred to in cl 27.1(e).
Thirdly, even if there was some basis for saying that Mr Daffy was not ‘transferred’ to the Sixth Schedule, this does not mean that he remained entitled to benefits under the First Schedule contrary to the terms of cl 27.1(e) and/or the eligibility conditions set out in the First Schedule.
For these reasons, paragraph 2 of Mr Daffy’s notice of contention must be rejected.
Conclusion
It follows that there should be a grant of leave to MLC, the appeal should be allowed and the orders made in the Trial Division in favour of Mr Daffy should be set aside.
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