MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme

[2018] NSWSC 923

Supreme Court

New South Wales

Medium Neutral Citation:

MX v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme & Anor [2018] NSWSC 923

Hearing dates:

15 June and 4 August 2017

Date of orders:

24 July 2018

Decision date:

24 July 2018

Jurisdiction:

Equity

Before:

Slattery J

Decision:

The separate questions for determination are both answered in the affirmative. Second defendant’s decisions of December 2014 and June 2017 declared to be void and of no effect. The second defendant ordered to pay the plaintiff’s costs of the separate determination. Directions made for the parties to prepare for a second stage hearing.

Catchwords:

INSURANCE – general – total and permanent disablement – plaintiff was an undercover policeman with the NSW Police Force – as a result of an incident in 1997 in the course of undercover work the plaintiff claims to suffer post-traumatic stress disorder – first defendant is a trustee of the Police Superannuation Fund – first defendant takes out a policy of insurance for the benefit of members of the fund with the second defendant insurer – plaintiff claims he is totally and permanently disabled after being off work for six months from September 2010 to March 2011 and that he is entitled to a benefit under the policy – the second defendant declines the plaintiff’s claim on various grounds in December 2014 (“the first decision”) – more material supplied to second defendant, which is requested to re-consider the first decision – second defendant makes another decision to the same effect in June 2017 (“the second decision”) – identification of the duties applicable to the second defendant in making the decisions to decline the plaintiff’s claim – separate question for determination – whether the second defendant insurer acted with the utmost good faith in dealing with the plaintiff’s claim and reasonably in forming an opinion as to whether the plaintiff qualified as totally and permanently disabled under the policy – separate question ordered to be determined as to whether the defendants’ respective decisions involved a breach of duty and therefore whether they can be set aside – if the decisions are set aside, what should now be directed in relation to the determination of whether the plaintiff is totally and permanently disabled under the policy at the second stage.

Legislation Cited:

Court Suppression and Non-Publication Orders Act 2010
Life Insurance Act 1995 (Cth)

Cases Cited:

Associated Provincial Picture Houses Ltd v
Wednesbury Corporation [1948] 1 KB 223
Attorney General (NSW) v Quinn (1990) 170 CLR 1
Banovic v United Super Pty Ltd [2014] NSWSC 1470
Beverly v Tyndall Life Insurance Co Ltd (1999) 21
WAR 327
Birdsall v Motor Trades Association of Australia
Superannuation Fund Pty Ltd (2015) 89 NSWLR 412
Bosnjak’s Bus Service Pty Ltd v Commissioner for
Motor Transport (1970) 92 WN (NSW)1003
Bread Manufacturers of New South Wales & Ors v
Evans & Ors (1981) 180 CLR 404
Chammas v Harwood Nominees (1993) 7 ANZ Ins
Cas 61-175
CGU Insurance Ltd v AMP Financial Planning Pty Ltd
(2007) 235 CLR 1
Edwards v The Hunter Valley Co-op Dairy Co Ltd
(1992) 7 ANZ Ins Cas 61-113
Erzurumlu v Kellogg Superannuation Pty Ltd [2013]
NSWSC 1115
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007)
230 CLR 89
Finch v Telstra Super Pty Ltd (2010) 242 CLR 254
Forsikringsaktieselskapet Vesta v Butcher [1986] 2 Lloyd's Rep. 179
Halloran v Hardwood Nominees Pty Ltd (2007) ANZ Ins Cas 90-142
Hannover Life Re of Australasia Ltd v Colella (2014) 47 VR 1
Hannover Life Re of Australasia Ltd v Dargan (2013) 83 NSWLR 246
Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233
Hannover Life Re of Australia Ltd v Sayseng (2005) ANZ Ins Cas 90-123
Jones v United Super Pty Limited [2016] NSWSC 1551
Lazarevic v United Super Pty Ltd [2014] NSWSC 96
McArthur v Mercantile Mutual Life Insurance [2002] 2 Qd R 197
MetLife Insurance Limited v FSS Trustee Corporation and Maund [2014] NSWCA 281
MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2016] NSWSC 980
MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56
Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic (1990) 21 FCR 193
Re Stevenson’s Settled Estate (1906) 6 SR (NSW) 420
Re NRMA Limited (2000) 33 ACSR 595
Repatriation Commission v Hill (2005) 142 FCR 88
Savelberg v United Super Pty Ltd t/a Cbus Superannuation Fund [2011] NSWSC 1482
Shuetrim v FSS Trustee Corporation [2015] NSWSC 464
Talbot v NRMA Limited (2000) 34 ACSR 650
Thorby v Goldberg (1964) 112 CLR 597
R v Anderson; Ex Parte IPEC-Air Pty Ltd (1965) 113 CLR 177
Weber v Tiss Pty Ltd [2005] NSWSC 67
Wyllie v National Mutual Life Association of
Australasia Ltd (1997) 217 ALR 324
Ziogos v FSS Trustee Corporation as Trustee of the
First State Superannuation Scheme [2015] NSWSC
1385

Texts Cited:

W I B Enright and R M Merkin, Sutton on Insurance Law (4th ed, 2015, Thompson Reuters)

 

J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis)

 

JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity:  Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths)

  Colin Edelman QC and Andrew Burns, The Law of Reinsurance (2nd ed, 2013, Oxford University Press)

Category:

Principal judgment

Parties:

Plaintiff: MX
First Defendant: FSS Trustee Corporation as trustee of the First State Superannuation Scheme
Second Defendant: MetLife Insurance Ltd

Representation:

Counsel:
Plaintiff: Brian Rayment QC (on 15 June 2017); Richard Cavanagh SC (on 4 August 2017); Adam Johnson
First Defendant: Scott Robertson (on 15 June 2017)
Second Defendant: Julian Sexton SC; Stephen Walsh

  Solicitors:
Plaintiff: Slater & Gordon
First Defendant: Thomson Geer
Second Defendant: HWL Ebsworth

File Number(s):

2015/378414

Publication restriction:

No

Judgment

1. The first defendant, FSS Trustee Corporation (“FSS”), is trustee of the First State Superannuation Scheme (“the Scheme”), the superannuation scheme for NSW Police. The plaintiff is a member of the Scheme. The second defendant, MetLife Insurance Limited (“MetLife”), is the insurer providing Total and Permanent Disablement (“TPD”) cover for members of the first defendant under a policy of insurance (“the Policy”).

2. The plaintiff once served as an undercover policeman. These reasons still conceal his identity. During his Police service he claims that he was exposed to many violent and traumatic events and incidents. For example in 1997 he says that he accepted an assignment that starkly realised the risks of undercover operations.

3. He says that disguised as a drug dealer, he was sent inside a house to buy cannabis. He carried money and a wire to relay to other police his attempt to entrap the dealers, men with established reputations for unlawful killing.

4. But the plan misfired. The dealers began to rob him. They threw the plaintiff to the ground and kicked him. The dealers hit the plaintiff with a revolver, then placed it close to his head and threatened to shoot him. The plaintiff was also concerned for the safety of another policeman with him, who was also being ill-treated. The plaintiff was ultimately rescued.

5. The plaintiff claims that as a result of this and a number of other highly stressful incidents, he commenced to suffer, and still suffers, chronic post-traumatic stress disorder.

6. He continued to work for the Police in undercover and the other roles for another 14 years as is described here. He last worked as a policeman in September 2010 and ultimately left the force in 2011.

7. The defendants do not contest that the plaintiff experienced a number of violent and traumatic events in the course of his Police service. Nor or do they contest his diagnosis of PTSD. But they do contest the effects that his PTSD has on the plaintiff’s capacity for remunerative employment.

8. In 2012, the plaintiff lodged a claim with FSS and MetLife that he was TPD within MetLife’s insurance policy and was therefore entitled to a benefit of $634,371 under that Policy. In December 2014 and again in June 2017, MetLife rejected the plaintiff’s claim, concluding he was not totally and permanently disabled within the Policy.

9. The plaintiff challenges both MetLife’s decisions. He contends that MetLife failed to consider and decide the plaintiff’s claim in accordance with its applicable duties. If the plaintiff fails, the proceedings are at an end, subject to appeal. If the plaintiff succeeds, one course is for the Court to proceed to consider whether or not the plaintiff qualifies as TPD within the meaning of MetLife’s Policy at the relevant time for assessment.

10. These proceedings were heard on 15 June and 4 August 2017. On 15 June 2017, Mr Brian Rayment QC and Adam Johnson, instructed by Slater & Gordon, appeared for the plaintiff. On 4 August 2017, Mr Richard Cavanagh SC of counsel appeared in place of Mr Rayment QC. On 15 June 2017, Mr Scott Robertson of counsel, instructed by Thomson Geer, appeared for the first defendant. He was excused and did not appear on 4 August. Mr Julian Sexton SC and Stephen Walsh of counsel, instructed by HWL Ebsworth, appeared for the second defendant on both days. The matter was carefully presented by the legal representatives on all sides and the Court was much assisted by their submissions.

The Questions for Determination

11. In March 2017, Stevenson J decided in these proceedings that there should be a separate determination of the following questions:

“Orders made in chambers in accordance with the Consent Order, initialled by Stevenson J, dated today and placed with the papers.

CONSENT ORDER

1. Pursuant to s 62(2) of the Civil Procedure Act 2005 (NSW) and r 28.2 and r 28.4 of the Uniform Civil Procedure Rules 2005 (NSW), the Court orders that the following questions be decided separately from and before any other questions in the proceedings:

(a)   whether, in refusing to accept the plaintiff’s claim, the second defendant acted in breach of its statutory and/or general law duties;

(b)   whether the second defendant breached its duty to act reasonably in considering the claim made by the plaintiff. (the “separate questions”).

2.   Note the undertakings of the defendants not to cross-examine the plaintiff on the hearing of the separate questions.

3.   Costs of the motion be costs in the cause”.

12. Just before the present hearing, MetLife made its second decision, to decline the plaintiff’s claim. Argument on the separate questions was conducted as a challenged to both decisions.

13. The plaintiff’s case did not challenge any decision FSS had made. FSS submitted that the separate questions did not directly concern it. FSS did not wish to be heard and was excused.

14. Although the questions address MetLife’s statutory and general law duties, the questions seem to have been crafted to deal with a possible breach of FSS’s statutory duties under the Superannuation Industry (Supervision) Act 1993 (Cth) s 52(2)(d). But the questions were in fact argued only in relation to possible breaches of MetLife’s general law duties.

The Publication of this Judgment

15. When the proceedings opened, the plaintiff sought a suppression order under the Court Suppression and Non-Publication Orders Act 2010, so his name would not be published either in this judgment or in connection with the proceedings. The basis for the order was firstly a letter dated 6 June 2017 (Exhibit A) from Detective Chief Inspector B. Janssen of the Special Services Group of New South Wales Police. Detective Janssen confirmed that between 1995 and his final date of service in 2011, the plaintiff had been involved in the investigation of both serious and organised crime. Detective Janssen said that, as a result of those duties, the plaintiff’s personal details have been suppressed on a number of public records. Detective Janssen advised that the suppression of those details continues whilst the plaintiff is on medical retirement. Exhibit A was supplemented by an affidavit filed later in the proceedings to substantially similar effect.

16. Pending the Court making its final decision in this matter, the Court made a temporary suppression order on 15 June 2017 and ordered that the plaintiff only be referred to by the letters “MX”:

“1.   The Court makes a non-publication order under the Court Suppression and Non-Publication Orders Act 2010 until further order (a) prohibiting the publication or other disclosure by social, broadcast or other media of any information tending to reveal the identity of the plaintiff in these proceedings, and (b) directing that these proceedings be henceforth listed in the Court’s published lists, referring to the plaintiff only by the letters “MX” and not by his name in the pleadings”.

17. The plaintiff also filed an affidavit in support of his claim for a suppression order, sworn on 28 June 2017. The affidavit well justifies the application. The plaintiff served in the NSW Police Force for 22 years. Most of this time he worked in undercover and covert duties. On a daily basis he dealt with dangerous criminals, who are capable of carrying out acts of violence. He has variously served in a regional drug squad, an investigator in drug trafficking and organised crime, with State Crime Command in the Drug Squad and Gang Squad and in the Special Services Group – Undercover Branch.

18. In the course of his duties he received direct and credible threats of retribution. He has investigated the activities of motorcycle gangs who have, in response, actively sought out the private home addresses of investigating police officers.

19. The plaintiff’s identity, his wife’s identification details, and their home address are suppressed on State and Commonwealth Government registers.

20. On the basis of Exhibit A and the affidavit evidence, the Court is satisfied that this suppression order should now be continued. This judgment has accordingly been prepared without referring to the plaintiff by name or referring to any other matters which would be likely to reveal the plaintiff’s identity. The Court has attempted to anonymise these reasons completely in a way which will not reveal his identity.

21. But by indirect reference, the plaintiff’s identity may possibly be revealed. For that reason, the Court will, in the first instance, publish these reasons for decision only to the parties and direct that they not be disclosed further. The Court will then direct the parties to consult with one another about whether or not the reasons can be published more widely in that form or whether further modification is required before publication.

The Policy and the Treaty

22. The Policy. The plaintiff was a member of the FSS Fund. MetLife issued to FSS, the trustee of the Scheme, an insurance policy which was fully entitled “Group Life Insurance – Police Blue Ribbon Policy” (“the Policy”). It is not in contest that the Policy, which applies to the plaintiff’s claim, commenced on 1 July 2005 and terminated on 30 September 2011.

23. There is no dispute that the Policy applied to the plaintiff as an “Insured Member”, as he was a police officer who was a member of the Scheme. Insured Members are covered under the Policy for death and TPD benefits (clause 2.1). If an Insured Member suffers from TPD while the Policy is in force, then, subject to the Policy, MetLife pays the Policy Owner, defined in Schedule 1 of the Policy as FSS, the sum insured in respect of that member, subject to the limitation of the Benefit payable to the Automatic Acceptance Level (see clause 2).

24. A Benefit of $634,371 is payable pursuant to clause 2 if the plaintiff were to be successful. The amount of the Benefit payable is calculated in accordance with Schedule 2D of the Policy, by reference to the plaintiff’s age, a multiple of his salary, and the proportion of full time hours he worked and his salary at the time of the insured event, namely, when the plaintiff’s symptoms became manifest: see MetLife Insurance Limited v FSS Trustee Corporation and Maund [2014] NSWCA 281 at [6], [15], [109] and [112].

25. The Policy defines TPD in Schedule 1, Item 6(a) in the following terms:

“6.   TOTAL AND PERMANENT DISABLEMENT

While covered under this Policy Total and Permanent Disablement shall mean:

…

(b)   In the case of an Insured Member whose Normal Hours are 15 hours each week or more at the time of the Insured Event giving rise to the claim:

The Insured Member having been absent from their Occupation with the Employer through injury or illness for six consecutive months and having provided proof to our satisfaction that the Insured Member has become incapacitated to such an extent as to render the Insured Member unlikely ever to engage in any gainful profession, trade or occupation for which the Insured Member is reasonably qualified by reason of education, training or experience”.

26. Because of the use of the words “reasonably qualified by education, training or experience”, clauses such as clause 6(b) are sometimes referred to as “ETE” clauses. They have been extensively interpreted by the Court.

27. The Policy provides a claims mechanism delete in clause 7. It is a condition of payment of any Benefit under the Policy that the “Insured Member” provides MetLife with “such evidence to substantiate the claim as we may reasonably require. The Insured Member must submit at our expense to a medical examination conducted by a legally qualified medical practitioner appointed by us as we deem necessary”.

28. All benefits payable in respect of an Insured Member are paid to the Policy Owner (FSS) (clause 8). Where MetLife does not agree with the Policy Owner about paying the benefit, or an Insured Member disputes a decision in relation to payment of the benefit, that dispute “must be referred to the Claims Review Committee” (clause 9.1). MetLife agrees to abide by the decision of the Claims Review Committee (clause 9.3).

29. The Trust Deed and Rules of the Scheme were also in evidence. But any decision of FSS under the Trust Deed and Rules in relation to the plaintiff is not the subject of the present challenge. It is not necessary to consider the those rules.

30. The Treaty. MetLife was also a party to a reinsurance treaty with The Automatic Group Life Reinsurance Treaty – Australia (“the Treaty”) and RGA Reinsurance Company of Australia Limited (“RGA Australia”), which reinsured MetLife’s liabilities under the Policy. The plaintiff sought production from MetLife of documents relating to its reasons for refusing the plaintiff’s TPD claim. The documents produced in response revealed for the first time to the plaintiff the Treaty and MetLife’s dealings with RGA Australia about his claim.

31. The plaintiff amended his Statement of Claim to add allegations that the Treaty gave RGA Australia veto power over MetLife’s decisions with respect to the plaintiff’s claim. The operation of the Treaty in relation to MetLife’s decisions became a primary issue in the present contest.

The Issues for Determination

32. These reasons deal with the plaintiff’s challenges to both MetLife’s 1 December 2014 and 9 June 2017 decisions. They deal with the various grounds of challenge to the first then the second decisions.

33. The challenges to the first decision are analysed in the following order: (1) issues relating to the Treaty, including issues relating to the competing legal advices given to MetLife before the first decision; and (2) issues relating to MetLife’s formation of the opinion comprising the first decision and its reasons for that decision.

34. The challenges to the second decision are analysed in the following order: (1) issues relating to the Treaty; and (2) issues relating to MetLife’s formation of the opinion comprising the second decision and its reasons for decision. There was no issue of conflicting legal opinions relating to MetLife’s second decision. A detailed narrative of relevant facts precedes each issue to be decided.

The Plaintiff, the NSW Police and the Claim – An Overview

35. The following is an overview of relevant history, representing limited findings on what appear to be uncontentious matters. The separate questions for determination mostly only require the Court to identify the material before MetLife as a decision maker, without the Court making findings on contentious issues of fact.

36. The plaintiff was fully employed in unskilled, semi-skilled and clerical occupations between leaving school in 1986 and joining the NSW Police in 1988. He worked as a trolley collector for a supermarket, a factory hand at a soft drink manufacturer and as a clerk in the NSW public service. After commencing with the Police in July 1988 and completing his training the plaintiff was allocated to General Duties policing between 1988 and 1994.

37. Thereafter he worked in the Drug Squad, as a Drug Trafficking and Organized Crime Investigator, at State Crime Command and in the Special Service Group principally as an undercover officer. By the time of his retirement he had achieved the rank of Detective Sergeant.

38. The incident referred to earlier in these reasons occurred in 1997. The plaintiff says he was involved in a number of other dangerous, stressful or demanding situations in the course of his Police duties both before 1997 and from 1997 until his medical discharge. Apart from the plaintiff’s dangerous undercover work some of those alleged stresses related to the plaintiff’s claimed exposure to evidence relating to the investigations of paedophile rings, the prosecution of child pornography crimes and the attendance at the scenes of recent violent suicides.

Separation from the Police Up to the TPD Claim – March 2011 to March 2012

39. On 2 September 2010, the plaintiff consulted with his general practitioner (who will be referred to in these reasons as “the General Practitioner”), who certified him as unfit to return to work. A period of six months absence from work followed up to 2 March 2011. On 13 October 2011, he was finally medically discharged from the Police. In March 2012, he commenced the claim process that resulted in these proceedings.

40. ETE clauses are commonly spoken of as having a “first limb” and a “second limb”. The first limb relates to whether the claimant qualifies as being absent from his occupation with the Police through illness or injury for six consecutive months. It is not in contest that the period between 2 September 2010 and 2 March 2011 qualifies under the first limb of the Policy. The second limb is whether the plaintiff qualifies as TPD within the terms of the ETE clause. The issues in this case relate to whether or not the plaintiff qualified under the second limb as at the date of assessment, which is 2 March 2011.

41. After the plaintiff applied for medical discharge, he was referred by the Police to Dr Prior, a psychiatrist. Upon medical discharge, the applicable industrial award entitled the plaintiff to a partial Permanent Disablement Benefit of $556,788, separately from the benefit the subject of these proceedings. This award based benefit was paid to him. The plaintiff was referred to Dr Wilkins, a psychiatrist, soon after his medical discharge. Dr Wilkins diagnosed the delayed onset PTSD and certified the plaintiff as unfit to return to work with the Police.

42. The plaintiff was seen by a number of doctors in connection with a workers’ compensation claim he made. He was seen by: Dr George, a psychiatrist, at the request of the workers’ compensation insurer; Dr Anderson, a psychiatrist, who reported to the plaintiff’s solicitors in the workers’ compensation proceedings; Dr Adams, a psychiatrist, who he saw at the request of the plaintiff’s solicitors; and Dr Rose, a psychiatrist, who was appointed as the workers compensation Medical Assessor.

43. Aspects of these reports are referred to later in these reasons. But the reports of Dr George, Dr Anderson, Dr Adams and Dr Rose generally agreed upon the diagnosis of PTSD and that the plaintiff could not return to work with the Police. But these reports differed as to whether or not the plaintiff could, in the future, engage in work outside the Police.

44. These reports were obtained for the purposes of the plaintiff’s workers’ compensation proceedings to assess whether or not the plaintiff had reached the “maximum medical improvement”, a term which is defined under the WorkCover Guidelines. Achieving maximum medical improvement means that the symptoms had been present for three months or more and were unlikely to improve by more than 3 per cent of a defined measure of Whole Person Impairment, over the ensuing 12 months. MetLife points out that this is a much shorter time frame than the period contemplated by the TPD definition. These reports did not address the question of “unlikely ever” in the ETE definition of TPD in the Policy.

45. The plaintiff has been paid workers compensation payments since he left the Police. He and his wife now support their dependent children on these workers compensation payments and such income as she can earn in addition herself.

Claim Processes Up to the First Decision – March 2012 to December 2014

46. The plaintiff submitted the TPD claim under the Policy to the FSS in March 2012. It took almost three years for MetLife to make the first decision. FSS commenced its assessment by collating the initial claim documentation and forwarding it to MetLife in June 2012.

47. Within a short period, MetLife had informed its reinsurer, RGA Australia, of the plaintiff’s claim. As will be seen, RGA Australia was kept closely informed by MetLife throughout the handling of the plaintiff’s claim.

48. In July 2012, video surveillance of the plaintiff had been undertaken. This showed that, from time to time, he conducted volunteer duties at a Surf Live Saving Club (“the SLSC”).

49. MetLife received medical reports and information from the plaintiff via the Trustee. MetLife also obtained the workers’ compensation file relating to the plaintiff. This file included: the reports of Dr George, Dr Anderson and Dr Rose; factual interviews with the plaintiff and his various Police supervisors; surveillance reports and interviews undertaken at the workers’ compensation insurer’s request (these indicated the plaintiff regularly performed voluntary work serving drinks behind the bar and was a contact person for events at the SLSC); and vocational assessment reports on the plaintiff.

50. The vocational assessment suggested that work in a clerical or administrative role or as an insurance consultant or law clerk would be suitable options given the plaintiff’s skills obtained in the course of his Police career and previous experience as a clerk working for NSW Water Board.

51. MetLife requested Associate Professor Kaplan, a psychiatrist, to review the material, to examine the plaintiff, to report on the plaintiff’s condition and assess whether the plaintiff would be able to return to some form of paid work in the future. Dr Kaplan considered that there had been some improvement, and that the plaintiff was not as socially withdrawn and isolated as reported by Dr Wilkins, the plaintiff’s treating psychiatrist, and the other workers’ compensation psychiatrists. Dr Kaplan could see no reason why the plaintiff could not return to some form of work providing it did not involve a return to Police duties.

52. In the course of MetLife’s investigation, it provided Dr Wilkins with the vocational assessment reports and Dr Kaplan’s reports. In response, Dr Wilkins reiterated his view that the plaintiff’s psychological symptoms were severe. Dr Wilkins stated that the plaintiff was not capable of performing the vocational roles identified on a regular basis and that the plaintiff would never be able to return to full time employment.

53. By March 2014, MetLife had decided it had investigated sufficiently and that it possessed enough material to form an opinion about the plaintiff’s claim. So on 7 March 2014, MetLife sent the plaintiff, what MetLife calls in its claims administration, a “procedural fairness” letter. This letter gave the plaintiff notice of the material MetLife intended to take into account in reaching its decision. It invited the plaintiff to provide MetLife with any further material or submissions he wished MetLife to take into account. The procedural fairness letter also provides useful assistance in identifying the material before the decision maker.

54. The plaintiff’s solicitors responded to the procedural fairness letter on 4 June 2014. They took issue with Dr Kaplan’s report. In reply, they enclosed the reports of Dr Anderson and Dr Adams.

55. Between June and December 2014, MetLife obtained conflicting legal opinions about the course it should take and engaged closely with its reinsurer RGA Australia. Both of these courses of action led to the challenges dealt with later in these reasons.

56. MetLife first refused the plaintiff’s TPD claim on 1 December 2014 (“the first decision”). Its reasons for the first decision were communicated to the plaintiff in a letter of that date. In broad terms, MetLife was not satisfied, from the material provided to it, that the plaintiff was TPD as defined within the Policy.

57. MetLife noted in its first decision: (a) the cautiously optimistic prognosis of the medical evidence that there had been some improvement in the plaintiff's condition since ceasing work with the Police; (b) the absence of any opinion in the evidence as to the likely period of any incapacity and of any reliable opinion as to prognosis; (c) Dr Adam’s view that the plaintiff was able to concentrate without difficulty; (d) the plaintiff’s regular activities at the SLSC and social interactions, which MetLife reasoned was inconsistent with the earlier reports of severe emotional distress and social withdrawal reported by Dr Wilkins and others; (e) Dr Kaplan’s view that there was inconsistency between the plaintiff's self-report and demonstrated capacity in the surveillance; (f) the various vocational assessments that indicated there were roles to which the plaintiff was suited by his education, training and experience outside the Police; (g) Dr Kaplan’s opinion that the plaintiff would be capable of performing work in such roles; and (h) the plaintiff’s relatively young age.

58. The conclusion to MetLife’s 1 December 2014 letter was brief. MetLife said in the final paragraph:

“MetLife considers that the Member has not suffered a total and permanent disablement as defined in the Group Life Insurance Policy contract – Blue Ribbon issued by MetLife to FSS Trustee Corporation

Accordingly, MetLife has declined the member’s claim”.

59. These reasons first deal with the reinsurance issues relating to the first decision. This account of events leading up to, and the reasons for, the first decision are sufficient to address the reinsurance issues. A narrative of relevant events occurring between the first and second decisions appears later in these reasons.

60. The contractual duties of insurers to consider and form opinions about TPD claims under ETE clauses underlies much of the Court’s analysis in these reasons. So those duties are stated next.

Applicable Legal Principles – Duties of Insurers as Decision Makers

61. The law defining the scope of the duties of decision makers dealing with claims by members of superannuation funds for whom the trustee has obtained insurance cover is well-developed. That law may be shortly stated. This statement of the law only deals with the legal duties applicable to an insurer in the position of MetLife, as the separate determination relates only to its obligations and not those of FSS.

62. The Court reserved judgment in this matter on 4 August 2017. After that date, the Court of Appeal decided Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 (“Jones”). The parties drew that decision to the Court’s attention.

63. The Member’s Standing to Sue. A member of a superannuation fund for whom the trustee has obtained insurance cover has standing to seek an order that the insurer pay the trustee the amount due to the trustee under the insurance contract: Erzurumlu v Kellogg Superannuation Pty Ltd [2013] NSWSC 1115 (“Erzurumlu”) at [54]. The member has standing to bring a claim both against FSS and under the Policy against the insurer: Wyllie v National Mutual Life Association of Australasia Ltd (1997) 217 ALR 324 (“Wyllie”), at 337-338.

64. The Insurer’s Duty of Utmost Good Faith. An insurer dealing with a claim against it owes an insured a duty of utmost good faith, sometimes also described as a duty of good faith and fair dealing: Hannover Life Re of Australia Ltd v Sayseng (2005) ANZ Ins Cas 90-123; [2005] NSWCA 214 (“Sayseng”) at [36]. The duty of utmost good faith does not impose obligations in the abstract; it depends on the contractual rights and obligations of the parties in relation to the claim; and it imposes an obligation on the insurer to exercise its rights and discharge its obligations as conferred by the contract of insurance with the utmost good faith: Ziogos v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme [2015] NSWSC 1385 (“Ziogos”) at [66].

65. The insurer’s obligation of utmost good faith is contractual, not fiduciary. Conduct which would not be permissible in a fiduciary relationship will not necessarily infringe the duties of good faith and fair dealing, as the fiduciary relationship is one in which the parties are not free to pursue their separate interests: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity:  Doctrines & Remedies (5th ed, 2014, LexisNexis Butterworths) (“Meagher, Gummow & Lehane”).

66. Some common practical examples of the discharge of the obligation of good faith and fair dealing assist in understanding its scope. The obligation may, in appropriate circumstances, require an obvious enquiry to be made: Halloran v HardwoodNominees Pty Ltd (2007) ANZ Ins Cas 90-142; [2007] NSWSC 913 (“Halloran”) at [38]. It is important to correlate the activities that an insured is capable of undertaking as, for example, activities that are demonstrated in video surveillance material, to the activities the insured is required to undertake in employment: Ziogos at [103].

67. The Duty to Form an Opinion. Under a contract for insurance, if an element of insurance liability is expressed in terms of the satisfaction or opinion of the insurer, the insurer is obliged to act reasonably in considering and determining that matter: Edwards v The Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 (“Edwards”) and Sayseng at [47]. In Edwards (at 77,536), McLelland J stated with respect to clauses such as that in issue in this case, that there was an implied obligation on the insurer to consider and determine whether it should form the relevant opinion, which involved a consideration and determination of the correct question; and in the exercise of powers affecting the interest of both itself and the claimant, the insurer was under a duty of good faith and fair dealing requiring it to have due regard to the interest of the claimant. McLelland J’s statement of the law was once more adopted with approval by the Court of Appeal last year in Jones.

68. Jones also approved (at [82] – [85]) Brereton J’s statement in Jones v United Super Pty Limited at [55] that the insurer’s decision will also be liable to be reviewed and avoided by the Court if, in forming an opinion (about a claimant’s disability), the insurer: (1) misdirects itself in law, that is to say asks itself the wrong question; or (2) takes into account an irrelevant consideration or fails to take into account a relevant consideration.

69. And Jones explains how concepts of reasonableness are to be applied in forming an opinion about a claimant’s disability. Jones was decided after the Court reserved judgment in this matter. Analogies exist between the judicial review cases, in which unreasonableness is assessed in the sense described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (“Wednesbury”) at 234, and the implied term of reasonableness in contracts of insurance, where the formation of the insurer’s opinion is a condition of the insurer’s liability. But the analogy is not so close as to require the adoption of the stringent test of unreasonableness in the Wednesbury sense in the insurance contract cases: Jones at [121]. Rather, the criterion of reasonableness of an insurer’s decision is “whether the opinion formed by the insurer was not open to an insurer’s acting reasonably and fairly in consideration of the claim”: Jones at [121]. And the insurer’s assessment of reasonableness is not made by reference to entirely objective criteria but must be unreasonable on the material then before the insurer: Jones at [94]. Nor does the assessment of reasonableness require the Court to undertake a review of the merits of the insurer’s decision: Jones at [93] and [99].

70. In Jones (at [65]) the Court of Appeal adopted McLelland J’s remarks in Edwards as to the Court’s task in deciding whether the insurer was entitled to form the opinion which it did:

“To say that an insurer must act reasonably in forming or declining to form an opinion is not to say that a Court can substitute its own view for that of the insurer. As North J pointed out in Doyle at 529, ‘reasonable persons may reasonably take different views’. Unless the view taken by the insurer can be shown to have been unreasonable on the material then before the insurer, the decision of the insurer cannot be successfully attacked on this ground”.

71. If the view taken by the insurer is shown to have been unreasonable on the material before it, then the decision can be successfully attacked: Sayseng (at [36]) and Jones (at [67] and [94]). The Court must not substitute its own view for that of the insurer by reference to additional material not before the insurer: Sayseng (at [54]) and Jones (at [68]).

72. The insurer’s duty of utmost good faith in dealing with a claim and the duty to act reasonably in forming an opinion may be compared and contrasted. The duty of utmost good faith: (a) is broader than the implied term obliging the insurer to act reasonably and applies to all aspects of the claims handling process: Ziogos at [68] and Jones at [71]; (b) does not imply a higher or stricter standard than the implied term requiring the insurer to act reasonably in considering and determining the matter: Ziogos at [69]; (c) is not to be equated with the implied obligation to act reasonably in forming an opinion concerning or being satisfied about a particular matter, nor are the two standards the same: Ziogos at [73], commenting on CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1; [2007] HCA 36; and (d) requires the insurer to form the opinion itself and to act with the utmost good faith in doing so and it is not sufficient that some other insurer acting reasonably could have reached the conclusion that it did: Ziogos at [74].

73. Some authorities have used other words to describe the obligation to act reasonably in forming an opinion. Nicholas J’s description of the obligation is particularly useful: as one which requires the decision maker to give an objective, even-handed and realistic consideration to the whole of the evidence, uninfluenced by personal beliefs, prejudice, suspicion, or speculation: Savelberg v United Super Pty Ltdt/a Cbus Superannuation Fund [2011] NSWSC 1482 at [13]. In accordance with authority, “objective”, in Nicholas J’s formulation, should be taken to mean “unbiased from the perspective of the decision maker” and not to invite an assessment of a hypothetical claimant or a decision divorced from the actual material before the decision maker.

74. The Duty to Give Reasons. It follows from the requirement that the insurer itself form an opinion acting in accordance with its duty of utmost good faith, that the insurer should give reasons for its decision. As Ball J explained in Ziogos at [75]:

“[75]   In my opinion, it follows from the previous paragraph that MetLife was also required by its duty of utmost good faith to give reasons for its decision. It is only by examining those reasons that it is possible to determine whether it acted with the utmost good faith in forming the opinion it was required to form. To put the point another way, where an insured person’s rights depend not on the objective fact (whether or not the insured suffered from TPD) but on the insurer’s opinion concerning that question, the requirement of utmost good faith requires the insurer to explain how it reached the decision it did so that the insured person can be satisfied that the decision itself was reached in the utmost good faith”.

75. But an insurer is not required to undertake the detailed consideration of a claim required at a court hearing: Chammas v Harwood Nominees (1993) 7 ANZ Ins Cas 61-175 (“Chammas”); and Weber v Tiss Pty Ltd [2005] NSWSC 67 at [8], (“Weber”). An insurer’s statement of reasons for declining a claim should be understood as a practical document intended to inform the claimant of the basis of the decision rather than providing detailed reasons with reference to the evidence being relied upon, comparable to a judgment of a court or tribunal: Weber at [8].

76. The Use of Expert Evidence. Expert evidence was deployed on both sides in this case and some of it was before FSS and MetLife at the time of their respective decisions. This circumstance adds additional content to the applicable duties in the consideration and determination of this claim. The following additional statements of principle have relevance where experts are involved. If the insurer seeks an opinion from an expert; it must provide the expert with all the information relevant to the expert’s opinion; the expert must be asked the right questions; but asking the right questions of the expert does not require the insurer to ask the expert to address specific provisions in the policy as the insurer is making the ultimate decision and not delegating it: Lazarevic v United Super Pty Ltd [2014] NSWSC 96 (“Lazarevic”) at [101]. Experts and the insurers who rely upon them should attend to evidence relating to the individual insured and the insured’s characteristics rather than to general statements of hope or expectation about the circumstances or conduct of anyone suffering from the condition in question: Ziogos at [102]. Where an expert’s opinion about an insured’s circumstances or capacity for employment depends upon an assumption, it may be impermissible for the insurer to rely upon the expert’s opinion as to that matter unless the assumption is verified: see for example Ziogos at [103].

77. The Consequences of Non-Compliance. If the insurer does not comply with its duty of utmost good faith, the Court may itself determine the question whether the insurer suffered from TPD: Sayseng at [36](e); Birdsall v Motor Trades Association of Australia Superannuation Fund Pty Ltd (2015) 89 NSWLR 412; [2015] NSWCA 104 at [25]; and Jones at [67].

Applicable Legal Principles – TPD within the Policy

78. In light of Stevenson J’s orders, the Court does not have now to decide the second stage question, whether the plaintiff is TPD within the meaning of the Policy. A decision in relation to whether the plaintiff is now TPD within the Policy will depend upon additional findings of fact at the stage 2 enquiry that will take place. These findings may cover matters that: (a) occurred after the period that FSS and MetLife declined the plaintiff’s claim; or (b) were not before FSS or MetLife at the time they made their respective decisions but are now before the Court, on the second stage inquiry.

79. But the reasonableness of MetLife’s decision depends upon the operation of the ETE clause in the Policy. The authorities on that subject must first be considered.

Applicable Legal Principles – Interpretation of the ETE Clause

80. ETE clause policy wordings similar to those in the Policy have received extensive judicial consideration both at first instance and on appeal.

81. From those cases, statements of applicable principle can be refined. In the Court of Appeal’s decision in Jones (at [147] – [150]), Gleeson JA considered Brereton J’s elucidation of the meaning of an ETE clause identical to the one under consideration in that case. The effect of the Court of Appeal’s decision in Jones was to approve Brereton J’s comprehensive statement at first instance in that case (Jones v United Super Pty Limited [2016] NSWSC 1551, [71] – [72]) of the proper interpretation of the ETE clause, which is set out here in full:

“[71]   It is not necessary, in order to satisfy the TPD definition, that the insured must be incapable of any regular remunerative work, but only that he or she be incapable of regular remunerative work for which he or she is reasonably fitted by education, training or experience. The ETE clause confines the scope of the “regular remunerative work” from which the insured is disabled to that for which the insured is reasonably fitted by education, training or experience. In that phrase, the word “by” is important – it postulates a connection between the suggested future work, and the insured’s past education, training and experience. The concept of an occupation or work “for which the Insured Person is reasonably fitted by education, training or experience” directs attention to the insured’s vocational history to date, and to occupations for which that vocational history fits the insured. It refers not to any work for which the insured might have physical and mental capacity without further training, but to work for which the insured has been prepared and shaped by education, training and/or experience. The purpose of the provision is to provide a benefit for those who are disabled from following the vocations for which their past education, training and experience has prepared them – not any occupation which may be conceived, however far removed from his or her vocational history, which can be performed without further education, training or experience. The policy insures the capacity of an insured to perform regular remunerative work, not simpliciter, but in an occupation for which the insured’s education, training and experience has prepared him or her. In that way, it insures against loss of the ability to pursue those employments or careers for which the insured has been prepared and shaped by his or her past vocational history. The point is illustrated by the reverse of the current type of situation: a surgeon whose tertiary education was in medicine and whose entire vocational history was in surgery, who lost the fine motor skills required for surgery, but was otherwise physically fit, would not be reasonably fitted by education, training or experience for work as a manual labourer, even though he or she might be perfectly capable of performing it without further training.

[72]   Thus the first question should be, for what occupations is this claimant fitted by his or her education, training and employment. It is a mistake to first search for occupations which an insured might be able physically and mentally to perform without further education, training or experience, rather than to examine the insured’s vocational history and to identify from it the occupation or occupations for which his education, training or experience has prepared the insured”.

82. On appeal, Gleeson JA said that in the ETE clause, the word ‘by’ in the phrase ‘reasonably fitted by education, training or experience’ clearly expresses the notion of a link or connection between the suggested future work and the insured’s past, education, training and experience: Jones at [146].

83. “Unlikely Ever” to be Able. The words “unlikely” and “ever” in this group of words have both been closely considered. The word “unlikely” in the formulation has been said to mean improbable in the sense of a less than 50 per cent chance: Halloran at [76] and Beverly v Tyndall Life Insurance Co Ltd (1999) 21 WAR 327; [1999] WASCA 98 at 32.

84. Expressing the word “unlikely” as requiring a less than 50 per cent chance does not invite a statistical test, as the formula is not concerned with what is likely in the population as a whole, but rather whether, having regard to what is known about the insured, he or she was unlikely ever to be able to engage in any gainful profession, trade or occupation for which he or she was reasonably qualified by reason of education, training or experience: Ziogos at [83].

85. In Shuetrim v FSS Trustee Corporation [2015] NSWSC 464 (“Shuetrim”) Leeming JA (at [88] – [89]) also cautioned against the illusion of mathematical precision in the application of the term, as follows:

“[88]It seems clear to me that the headnote of White has caused some subsequent decisions to depart from what was applied in Beverley (as well as by White J herself in Wiley). Further, I accept TAL’s submission that in most cases any attempt to express a likelihood in percentage terms will have merely the illusion of mathematical precision. I also agree with TAL’s submission that the bracketed words in the TAL policy tell against the construction in the headnote. Those words confirm what flows from the ordinary meaning of the language of “unlikely ever”, namely, that where there is a real chance that a person may return to relevant work, even though it could not be said that a return to relevant work was more probable than not, the insurer would not be satisfied that the definition applies. “Unlikely ever” is, in this context, much stronger than “less than 50%”.

[89]What follows is this. To make an assessment of TPD, it is not sufficient for the insurer to be satisfied that it is more likely than not that the person will never return to relevant work. On the other hand, if there is merely a remote or speculative possibility that the person will at some time in the future return to relevant work, an insurer will not, acting reasonably and in compliance with its duties, be able to be satisfied that the person is not TPD. The critical distinction is between possibilities which are readily contemplatable even though they may not be more probable than not, and possibilities which are remote or speculative. A real chance that a person will return to relevant work, even if it is less than 50%, will preclude an Insured Person being unlikely ever to return to relevant work”.

86. The issue is whether it is unlikely that the insured would actually obtain paid employment for which the insured was qualified by education, training or experience, not whether, in theory, the insured may obtain employment of that type: Halloran at [76]; Banovic v United Super Pty Ltd [2014] NSWSC 1470 and Lazarevic at [108]-[109].

87. “Regular Remuneration Work”. Capacity to perform “regular remunerative work” is different from the capacity to perform a particular work task. And it does not follow that because a person is physically capable of performing one or more work tasks, that that the person has an ability to engage in remunerative work: Hannover Life Re of Australasia Ltd v Colella (2014) 47 VR 1; [2014] VSCA 205 (“Colella”) and Jones v United Super Pty Limited [2016] NSWSC 1551 at [77].

88. A person can be reasonably fitted for “Regular Remuneration Work” by reason of education, or training or experience, or a combination of those factors: Hannover Life Re of Australasia Ltd v Dargan (2013) 83 NSWLR 246; [2013] NSWCA 57 (“Dargan”). A claimant may require further training to pursue another occupation after the termination of his employment, leading to the assessment of whether the claimant was TPD. The fact that some further training may be required does not preclude a conclusion that the claimant was reasonably fitted to carry out the further occupation: Dargan at [44]. In Dargan, for example, a heavy vehicle driver had already obtained a certificate to become a taxi driver and only needed to pass a subsequent week long course to ensure that he was able to retain that certificate: Dargan at [40]. He was found not to be TPD. But in Halloran, the claimant had ceased to be employed in a role of greasing machinery and in the three years after leaving that employment he completed a TAFE course qualifying him for white collar work. Brereton J held in Halloran that, at the time of suffering his injury, the claimant was not qualified for that work “by reason of his education, training and experience”: Halloran at [35] and Dargan at [40] – [41].

89. Dargan also decides (at [46]) upon an identical wording that even part-time work may qualify as Regular Remuneration Work but that casual work or other work of an intermittent nature would not qualify as Regular Remuneration Work. Bathurst CJ said in Dargan at [46]:

“[46]   The question of whether Mr Dargan suffered Total and Permanent Disable­ment, notwithstanding his ability to undertake part-time work as a taxi driver at the relevant date, depends on whether such part-time work was Regular Remuneration Work as that term is defined in the policy. The definition provides that a person is engaged in regular remunerative work if they are doing work in any employment, business or occupation. There is no limitation on the work being full-time or part-time. The limitations are that the work must be remunerative, that is done for reward or hope of reward and must be regular. The word regular means something occurring at fixed times or uniform intervals (see the definitions in the Shorter Oxford English Dictionary and the Macquarie Dictionary). Thus, it would not in the present context include casual work or other work of an intermittent nature. However, the word regular would not on a literal construction exclude part-time work. In the present case Mr Dargan was able to work regularly, albeit on a part-time basis as a taxi driver, at least from June 2008. Subject to passing the course, there was nothing to suggest he would not have been capable of doing this at the time of assessment and as I indicated the contrary was not put. It follows, in my opinion, that Mr Dargan was capable of doing Regular Remuneration Work”.

90. Geographical Limitation on Employment. In Jones (at [173] - [176]) the Court of Appeal considered, but did not decide, whether the policy definition of TPD would be satisfied if the claimant was incapable of finding available employment in or near the location where he or she lived. A ground of appeal in Jones was directed to challenging particular remarks of the learned trial judge, Brereton J, which remarks were not essential to his Honour’s reasoning and therefore the issue did not need to be determined on appeal in Jones. Brereton J’s remarks at first instance in Jones v United Super Pty Limited (at [67]) were relevantly as follows:

“[67]   I find it difficult to accept that someone who has always resided and worked in a regional town may be regarded as not TPD because there are jobs which he or she could physically perform, but only on the other side of the country. They would have lost the ability, which they formerly had, to work in any employment for which they were fitted by education, training or experience, where they live”.

91. On appeal in Jones (at [174]), the Court discussed the existing conflict of authority and academic opinion on this question:

“[174] In expressing that view, his Honour recognised that some authorities supported a narrower view that the concept of “unlikely ever to (be able to) engage” in work is concerned solely with the capacity of the Insured to perform suitable work, and not the availability of such work: Repatriation Commission v Hill (2005) 142 FCR 88; [2005] FCAFC 7 at [57]-[58]; Wells v Australian Aviation Underwriting Pool [2004] QCA 43 at [17]; and Hannover Life Re of Australasia Ltd v Collela (2014) 47 VR 1; [2014] VSCA 205 at [30] and [34]. His Honour also noted that a similar view had been expressed by the current authors of Enright & Merkin, Sutton on Insurance Law (4th ed), Vol 2 at [21.360]. Against this, was the view expressed in decisions in this State which, his Honour noted, have emphasised that the practical availability of suitable work for the insured is relevant to the likelihood of his or her engaging in it: Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Ins Cas 61-175; Nile v Club Plus Superannuation Pty Ltd [2005] NSWSC 55 at [64]; and in Wheeler v FSS Trustee Corporation ATF First State Superannuation Scheme [2016] NSWSC 534 at [74]-[80]”.

92. An issue for trial judges in this State will be whether to apply the earlier decisions in this State, to which Brereton J referred at first instance in Jones and to agree with his Honour’s remarks on this issue, or to apply the interstate appellate authority and the academic opinion.

93. If these interstate and Federal Court appellate decisions are directly on point, then this issue must be approached bearing in mind the relationship between a single judge of a state Supreme Court and a full court of another state, a relationship which was re-stated by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22, at [135]:

“[135]   Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong (195). Since there is a common law of Australia rather than of each Australian jurisdiction, the same principle applies in relation to non-statutory law”.

94. This issue does not ultimately arise in this case but is briefly discussed here. Existing New South Wales first instance authority such as Ziogos at [102], requires the Court to assess a claimant in the manner that Brereton J did: not hypothetically, but in the claimant’s very circumstances.

95. Brereton J included a claimant’s place of residence as one of those circumstances: this allows the Court to accurately consider a claimant’s particular, rather than hypothetical, circumstances.

96. It must be said that if a claimant’s location is wholly ignored, so must be the many incidental costs to a claimant in selling assets, altering existing local financial engagements and relocating to another part of the State or country in assessing a claimant’s TPD status.

97. Where it can be accepted that there is no availability of local work (based on a claimant’s existing education, training or experience) in the claimant’s local area, it seems difficult to justify assessing a claimant as not being TPD if the cost of relocating to find available work of that kind elsewhere would make accepting that distant work an economically unviable decision. The overall costs of relocation are a logical integer in any finding that a claimant is not TPD due to the availability of work outside the local area.

98. The appellate authority outside New South Wales can be briefly surveyed. Repatriation Commission v Hill (2005) 142 FCR 88; [2005] FCAFC 7 (“Hill”) at [57] – [58] in construing repatriation legislation was concerned to ensure that an unwarranted gloss was not placed upon the language used by the legislature in the expression to “do work”. The full Court of the Federal Court found at [58] that the expression “does not focus upon employability but rather on the capacity to perform remunerative work of a kind for which the person is otherwise suited”.

99. In Colella, after considering Hill at [30], the Victorian Court of Appeal was examining the words “unable to work” in an insurance policy and said the following on this issue at [34]:

“[34]   To the extent, however, that the trial judge's construction of the expression `unable to work' is dependent on the existence of work `which is reasonably available in the market place and in an area in which it could be expected an insured in the position of the claimant could reasonably apply', the trial judge went too far.22 The TPD definition is concerned with the capacity of an insured to perform work in an occupation or remunerative employment. The policy does not insure the actual availability of work for the insured in the occupation or remunerative employment in the town or region in which the insured resides”.

100. It can be accepted that policies such as the Policy do not “ensure the actual availability of work for the insured in the occupation or remunerative employment in the town or region in which the insured resides”. It may be necessary to measure the insured-claimant’s employability by reference to kinds of employment that can only be obtained elsewhere. But it is not realistic to assess the availability of such employment without also taking into account the costs of the claimant relocating or travelling to acquire such employment.

100. Other cases, which are said to import and apply what has been referred to as a “labour market test”, have been criticised as exemplifying an impermissible elision between two quite separate concepts – realistic physical capacity and labour market availability: Enright and Merkin, Sutton on Insurance Law (4th ed, 2014, Thomson Reuters, Volume 2) at [21.360] (“Enright and Merkin”).

101. The Time to Determine TPD Status. The time at which a claimant suffers TPD is capable of a general answer, which was discussed by Ball J in Ziogos at [86] as follows:

“[86]   …

Generally, and subject to the terms of the policy, the question whether a member suffers from TPD is to be determined as at the expiration of the qualifying period specified in the policy. In the normal case, it is at that point of time that the insured person’s cause of action under the policy arises: see Giles v National Mutual Life Association of Australasia Ltd (1986) 4 ANZ Ins Cas 60-751 at 74,529 per Pidgeon J, cited with approval by Brereton J in Halloran v Harwood Nominees at [33]. See also Stevenson J’s discussion in Shuetrim v FSS Trustee Corporation [2015] NSWSC 464 at [51]ff. However, that will not always be the case. Where the right to make a claim under the policy depends, as in this case, on the formation of an opinion by the insurer in relation to a matter concerning the future which itself is uncertain, the position is less clear. It is difficult to see how the insurer could be in breach of the policy until the claim is made and the opinion is formed or the insurer fails to form the opinion in breach of its duty of utmost good faith. In those cases, the question whether the member suffers from TPD should be determined at the time the insurer forms its opinion or fails to form its opinion consistently with its duty of utmost good faith. In addition, as Pidgeon J pointed out inGiles, it is possible to take into account subsequent events to the extent that they shed light on what was likely at the time the assessment was to be made”.

103. Enright and Merkin (at [21.430]) also argue that the “as at” date, or date for assessment to determine TPD status, is the expiration of the applicable qualifying period as the relevant date. That is the usual case and nothing in the Policy suggests here that the usual situation should not prevail.

104. The Use of Subsequent Medical and Other Evidence. It is not uncommon in the consideration of TPD claims for a party to contend that medical and other expert opinions expressed subsequent to the date upon which the insurer is required to assess whether or not a claimant is TPD should be taken into account when examining the claim at the earlier date for the required assessment. Depending upon the terms in which such expert opinions are expressed, they may be relevant, and may be taken into account by the Court when it is considering the probability of a claimant being able to engage in suggested occupations at the date in which an insurer is required to assess TPD: Shuetrim at [150]. As McPherson JA explained in McArthur v Mercantile Mutual Life Insurance [2002] 2 Qd R 197; [2001] QCA 317 at [23], this conclusion accords with the principle that the Court does not speculate when it may know: approved in Jones at [194]; see also Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; [2010] HCA 36 at [18].

The Amended Statement of Claim and the Reinsurance Treaty Issue

105. Shortly before the hearing, the plaintiff gave notice of his intention to amend the Statement of Claim to add additional particulars of alleged breach of duty against MetLife: that MetLife, as reinsured, acted in breach of "its statutory and/or general law duties" in entering into a reinsurance treaty with RGA Australia, as reinsurer (“the Treaty”), in acting under RGA Australia's control and direction in rejecting the plaintiff's claim, and in not notifying the plaintiff of RGA Australia's views about the plaintiff’s claim in MetLife’s procedural fairness letter. MetLife had indeed entered into the Treaty with RGA Australia.

106. The principal issue argued orally was the question of RGA exercising an alleged right of veto over MetLife’s decisions about the plaintiff. But the scope of the amendment and the parties’ written submissions about the Treaty were wider in content. The amendment relevantly provided as follows:

“48.   In refusing to accept the Plaintiff’s claim, the Second Defendant acted in breach of its statutory and/or general law duties, including the duty to act in good faith and fair dealing towards the plaintiff:

…

xxvi.   Negotiated and entered into a treaty of reinsurance with RGA pursuant to which the second defendant gave to the reinsurer a power to veto over the making of any payment to the plaintiff which the reinsurer exercised by informing the second defendant that it did not consent to the making of a payment to the plaintiff whereby the second defendant would have been in breach of its reinsurance treaty if it admitted the plaintiff’s claim;

xxvii   Acted under the control and in accordance with the direction of the reinsurer in handling the plaintiff’s claim and in deciding to reject the plaintiff’s claim;

xxviii.   Preferred its own interests to those of the plaintiff;

xxix.   Took into account an irrelevant consideration namely the stance adopted by the reinsurer;

xxx.   Failed in its procedural fairness letter to notify the plaintiff of the views or assertions on which the second defendant and/or its reinsurer were acting in deciding to reject the plaintiff’s claim”.

107. MetLife did not oppose the amendment, which was first incorporated into the First Amended Statement of Claim at paragraph [48] filed on 15 June 2017 (the first hearing day). The form of amendment continued in the Second Further Amended Statement of Claim filed on 4 August 2017 (the second hearing day).

108. In reply to the plaintiff’s case on this issue, MetLife submits that complying with a reinsurance treaty is not conduct which can vitiate an insurer’s decision, unless the decision is one which, in any event, no reasonable insurer acting reasonably could have made on the material available to it. MetLife further contends: that entering into a commercial arrangement to reinsure under the Treaty a proportion of its liability is not inconsistent with notions of good faith and fair dealing towards the trustee and the members of the scheme; that reinsurance is not an unusual circumstance requiring disclosure to the plaintiff; that the reinsurance Treaty does not require MetLife to substitute RGA Australia's decision for its own; and that the evidence does not support the contention that MetLife actually acted under RGA Australia’s control. The parties’ detailed submissions about these matters are set out and analysed later in these reasons.

109. When MetLife made the first of the decisions under challenge in these proceedings, it was in dispute with RGA Australia about whether the Treaty applied to a class of claims for which MetLife alleged that RGA Australia was on risk under the Treaty, a class that included the plaintiff’s claim. RGA Australia denied that it was potentially on risk for the plaintiff’s claim because it, and a class of other claims like it, related to initial medical events and illnesses that had occurred before MetLife and RGA Australia entered the Treaty. But despite RGA Australia’s denial of liability, it nevertheless played a close role in the claims handling process in relation to the plaintiff’s claim on a without prejudice basis. This was a course that authority establishes was open to it, whilst still requiring the reinsured’s continued adherence to a claims co-operation clause: Lexington Insurance Co v Multinacional De Seguros Sa [2009] Lloyd’s Rep IR 1. At all times, RGA Australia maintained that it was doing so without prejudice to its capacity to deny liability because MetLife had not satisfied the initial event provisions of the Treaty.

110. Ultimately, MetLife sued RGA Australia under the Treaty in Commercial List proceedings in this Court. Those proceedings were determined in RGA Australia’s favour, first before McDougall J and then before the Court of Appeal: MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2016] NSWSC 980; MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56. These two judicial decisions were made in between MetLife’s first and second decisions about the plaintiff’s TPD status under the Policy.

111. The point at issue before McDougall J was whether a provision (which was called in that litigation the “Initial Event Sentence”) in an addendum (“Addendum Four”) to the Treaty had the effect of limiting MetLife’s entitlement to indemnity under Addendum Four. The Initial Event Sentence was in the following terms:

“For a claim to be eligible for consideration under the reinsurance arrangement the initial event leading to or contributing to the claim must occur after the date of effect of the treaty”.

112. McDougall J agreed with RGA Australia’s construction of the Initial Event Sentence in the Treaty and found that, on its proper construction, it had “the effect that RGA has no obligation to consider any such claim unless the initial event leading to or contributing to it occurs after the date of the treaty” (at [72]). MetLife appealed against McDougall J’s decision. The Court of Appeal upheld McDougall J’s construction of the Initial Event Sentence. That meant that RGA Australia was not required to reinsure MetLife under the Treaty for claims such as the plaintiff’s.

113. The Treaty. The Treaty was originally made between Citicorp Life Insurance Limited (“Citicorp”) and RGA Australia and was described as an “Automatic Group Life Insurance Treaty-Australia”. MetLife assumed party status to the Treaty in place of Citicorp through an addendum to the Treaty signed in December 2005. Using the common language of reinsurance, under the Treaty, Citicorp, the reinsured, is defined as the “Cedant”. And RGA Australia, a company registered under the Life Insurance Act 1995 (Cth) to carry on life reinsurance business, which accepts the insurance “ceded” to it under the Treaty, is defined in the Treaty merely as “RGA Australia”. The Treaty sets out arrangements by which RGA Australia will reinsure the Cedant’s liability under certain “Policies” as defined: see Recital D. As MetLife became the relevant party in place of Citicorp, MetLife is the party referred to as the “Cedant” in all extracts from the Treaty set out in these reasons. The Treaty defines relevant terms in its interpretation clause, Article 34, parts of which are set out later in these reasons.

114. The the overall nature of the reinsurance that the Treaty offered to MetLife should be briefly described. The Treaty in Part A – Agreement, provides for the Treaty’s duration (Article 2); warranties by the Cedant that it has supplied RGA Australia with complete and accurate documents for the policies covered by the Treaty (Article 3); and confirmation that the Cedant has no other applicable reinsurance (Article 4).

115. The Treaty in Part B – Automatic Terms, provides that MetLife must offer to RGA Australia certain policies defined in Schedule B for reinsurance and RGA Australia must automatically reinsure the Cedant’s liability under the policies (Article 5). It also provides that MetLife must supply information to RGA Australia about the policies as agreed (Article 6). This part of the Treaty represents a classic form of Treaty reinsurance in which all risks of the class of business specified by the Treaty that are accepted by the reinsured, MetLife, will be ceded to the reinsurer, RGA Australia, and accepted by it. MetLife’s TPD policies, including the Policy, are included in the class of policies (as defined) the subject of this automatic reinsurance. The reinsurance in this case could be aptly be described as non-proportional excess of loss reinsurance.

116. The Treaty, in addition, provides facultative reinsurance for which MetLife and RGA Australia agree to a process by which they may respectively cede and accept additional risk. The Treaty in Part C – Facultative Terms, provides for the Cedant to apply for, and RGA Australia to make, offers and for the Cedant to accept offers in relation to the reinsurance of the Cedant’s liability under policies other than those reinsured under Part B (Article 7). The application for reinsurance must be accompanied by relevant disclosure (Article 8).

117. The Treaty in Part D – Reinsurance, applies to automatic reinsurance in accordance with Part B and Facultative Reinsurance entered into in accordance with Part C. Part D provides that each Reinsurance of a policy is on the basis of the terms of the Reinsured Policy, and the Treaty in each such Reinsurance is subject to the Relevant Law (Article 12).

118. Part D then importantly provides for the amount of RGA Australia’s indemnity to the Cedant (Article 13). Article 13 provides as follows:

“13.1   RGA Australia must indemnify the Cedant by the payment, subject to the terms of this Treaty, of the Reinsured Amount. The Reinsured Amount is:

(a)   (i)   the Claim Amount; and

(ii)   if and only if RGA Australia is liable to pay the Claim Amount, or where the Cedant incurs costs and expenses dealing with a claim under the Reinsured Policy, the Claim Costs,

if any only if:

(b)   the legal contractual liability of the Cedant under a Reinsured Policy to pay a Policyholder has been ascertained by:

(i)   the verdict or judgment of a Court or other binding legal tribunal; or

(ii)   an agreement to settle a claim by a Policyholder under a Reinsured Policy; and

(c)   there is no unremedied breach by the Cendat of the Reinsurance.

13.2   The Reinsured Amount equals the Break Amount only, if and only if the Cedant wishes to defend a claim by a Policyholder but RGA Australia notifies the Cedant that it does not agree to the claim being defended and there is no unremedied breach by the Cedant of the Reinsurance.

Exclusions

13.3   RGA Australia has no liability whatsoever for any amount payable by the Cedant to any Policyholder or any other person for any act, omission or conduct of the Cedant which:

(a) is in breach of any statute, other than the Insurance Contracts Act (Cth); or

(b)   involves punitive, exemplary or other non-compensatory damages, to the extent that they exceed or do not represent compensation for the Reinsured Amount,

and involves damages that do not represent compensation in respect of benefits under the Reinsured Policy..

13.4   The Reinsurance does not entitle the Cedant to share in any distribution by RGA Australia of profits of surplus, subject to Article 16. The amount of any benefit to which the Cedant is entitled under this Reinsurance is set out in this Treaty”.

119. Part D then provides for the calculation of Premium Payments (Articles 14 and 15), for the requirement to pay expense allowances to the Cedant (Article 16), and for GST (Article 17).

120. A detailed claims procedure is then provided for under the Treaty in Article 18. Articles 18.1 – 18.3 provide for the general supply of information between the Cedant, MetLife, and reinsurer, RGA Australia, and for MetLife to deploy its standard claims handling procedures. Then Treaty, Article 18 provides for MetLife’s options when RGA Australia directs MetLife to defend a claim. MetLife can defend the claim, or it can appoint RGA Australia to defend it (Article 18.6). But, in what became an article of central contention in these proceedings, MetLife agreed not to settle certain claims without RGA Australia’s approval (Article 18.8). Article 18 relevantly provides as follows:

“18   CLAIMS

Procedures

18.1   The Cedant must report within a reasonable time to RGA Australia any notification of an insured event or any claim, under any Reinsured Policy.

18.2   The Cedant warrants that it will apply its standard claims procedures to each claim under any Reinsured Policy.

18.3   The Cedant must make any claim, against RGA Australia under the Reinsurance, on the form agreed to between the parties and must supply information and documents about this claim that RGA Australia reasonably requests.

Flawed and Defended Claims

18.4   The Cedant must use its best endeavours, in accordance with its standard claims procedures, to discover any:

(a)   fraud; or

(b)   misrepresentation; or

(c)   non-disclosure;

in relation to any claim under any Reinsured Policy.

18:5   The Cedant must disclose to RGA Australia anything known to the Cedant at the time of making any claim under any Reinsurance that is relevant to the claim including, without limitation, relevant to its rights to deny or reduce liability in relation to that claim.

18.6   If, RGA Australia directs the Cedant to defend a claim, the Cedant is entitled by notice to RGA Australia to transfer and assign, and appoint RGA Australia as the Cedant’s agent in relation to, all its rights in relation to that claim including to defend the claim with absolute discretion in the conduct of that defence. On such notification:

(a)   the Cedant's Retention is payable by the Cedant to RGA Australia;

(b)   RGA Australia has no liability to the Cedant for any amount in relation to the relevant Reinsured Policy except to the extent that the Policyholder becomes entitled to the Sum Insured, costs and interest under the relevant Reinsured Policy and does not receive such amount;

(c)   the Cedant is not entitled to recover the Retention from RGA Australia;

(d)   the Cedant must establish to RGA Australia's reasonable satisfaction that it has not Prejudiced in anyway whatsoever the defence of the claim;

(e)   the Cedant must not, after the notice, Prejudice the defence of the claim;

(f)   The Cedant must, on RGA Australia's request, supply all documents, information, co-operation and assistance, in relation to the defence of the claim promptly on RGA Australia s request.

18.7   The Cedant must exercise any rights it has in relation to any claim or Reinsured Policy in relation to any misrepresentation or non-disclosure by a relevant person in accordance with the reasonable directions of RGA Australia.

Limits

18.8   For any Sum Insured above the Claim Handling Limit defined in Schedule F, the Cedant must before accepting liability for a claim under that Reinsured Policy, obtain RGA Australia's prior approval. This Article is subject to the other terms of this Treaty.

18.9   The Cedant must advise RGA Australia of any claim payable where its liability to do so arises from a wrongful act or omission by any person for whom the Cedant is vicariously liable whether under the:

(a) Insurance (Agents and Brokers) Act 1984 (Cth);

(b) the Corporations Act 2001 (Cth); or

(c)   otherwise.

If such wrongful act or omission entitles the Cedant to seek reimbursement from its intermediary, then the Cedant must take reasonable action to obtain such reimbursement.

18.10   The parties agree to share in proportion to their interest in the claim all reasonable costs and expenses incurred by the Cedant to a third party in this action and all monies recovered”.

121. The Treaty then provides for the making of payments on claims in Articles 18.11 to 18.13, including in the converse situation to that contemplated by Article 18.6, namely, where RGA Australia directs that the claim not be defended. These provisions are in the following terms:

“18.11   On a notification by RGA Australia to the Cedant that RGA Australia does not agree to the claim being defended:

(a)   the Break Amount is payable by RGA Australia to the Cedant subject to the terms of this Treaty;

(b)   RGA Australia has no liability for any amount in relation to the relevant claim, above the Break Amount with the exception of Claim Costs incurred to the date of the notice;

(c)   RGA Australia has no entitlement to recover the Break Amount from the Cedant or any other person, subject to the terms of this Treaty.

18.12   RGA Australia is entitled to require the Cedant to supply a copy of any discharge or release of the Cedant by the Policyholder, which the Cedant obtains before making any payment to the Cedant and that release or discharge operates as a release and discharge of RGA Australia by the Cedant in relation to that claim.

“The Reconsideration

MetLife does not propose to repeat here the consideration of the evidence related to the initial decision and set out in MetLife’s letter of 1 December 2014. MetLife’s additional consideration is set out below and in the enclosed Information Summary. This further consideration should be read in conjunction with that letter of 1 December 2014.

Please note with regard to our letter of 1 December 2014, the further consideration set out in this letter and the Information Summary now provided, that we have not referred to every document available to us. It is not practicable to do so however that some particular document is not specifically addressed does not meant that MetLife has not had regard to it. MetLife has carefully considered all of the evidence to hand”.

315. The parties contest whether or not, if MetLife’s first decision is vitiated by the Court, the second decision falls as well. The language of MetLife’s description of its task in the 9 June 2017 letter under this heading “The Reconsideration” and subsequent reasoning in the conclusion of the letter are relevant to that assessment.

316. MetLife’s second decision letter then addresses the questions in relation to the plaintiff as at 2 March 2011, a date that both sides accept is the correct date for that purpose. The letter then proceeds to deal with the additional affidavit evidence and the additional medical evidence filed in these proceedings, which was not available at the time of the first decision.

317. As to the affidavit evidence, the 9 June 2017 MetLife letter described an additional affidavit by a member of the SLSC and quoted the affidavit as observing the plaintiff’s attendance at the SLSC, both during the week and on the weekend, as being “more as a hobby than an active member. I [the SLSC observer] have seen him mainly there when he goes for paddles on his ski where [the plaintiff] stores it at the [SLSC]” and the SLSC observer has seen the plaintiff “sweep out the board shed, put away nipper equipment, pick up rubbish, load and unload board and ski trailers after carnivals. All of these activities he has completed as a volunteer”.

318. MetLife’s 9 June 2017 letter then quoted the SLSC observer in the following way, “[the SLSC observer] further stated that he was not aware that the [SLSC] relied upon the member performing any action and he concluded that in his opinion, a member attended the [SLSC] not only for his enjoyment but as a means where he is able to leave his home and go to a place that he is able to feel safe and secure”.

319. The second decision then considered the SLSC observer’s observations of the plaintiff in the following way:

“[The SLSC observer’s] observations lend weight to the view that, in a safe environment, the member has capacity to socialise, conduct certain tasks and undertake activities on a weekly (if not daily) basis to assist a community organisation.

The affidavit does not however go to the issue required to be considered by MetLife under the PBRI Policy including whether the member is unlikely ever to engage in any gainful profession, trade or occupation for which he is reasonably qualified by reason of education, training or experience”.

320. The 9 June 2017 MetLife letter then dealt with the medical evidence and, in particular, the additional medical evidence received after 1 December 2014.

321. MetLife acknowledged that Dr Wilkins (treating psychiatrist), Dr George (defendant’s workers’ compensation consultant psychiatrist), Dr Anderson (consultant psychiatrist appointed by the former solicitors for the plaintiff), Dr Adams (plaintiff’s workers’ compensation consultant psychiatrist) and the General Practitioner, all had agreed on the diagnosis of PTSD and had agreed that it was unlikely that the member would return to employment outside the Police. Indeed, the report stated that these doctors “agree on the diagnosis of PTSD and agree that it was unlikely that the member would return to employment outside the NSW Police Force”.

322. But the 9 June 2017 MetLife letter observed that these various medical opinions were directed towards the “timeframe contemplated under the applicable Workcover guidelines” and not to the longer “timeframe contemplated by the TPD definition under the [Policy]”.

323. MetLife contrasted those medical reports with the medical reports of Dr Michael Prior (consultant psychiatrist appointed by the Police) of 21 July 2011 and Dr Norman Rose (consultant psychiatrist appointed as the workers’ compensation medical assessor), that the plaintiff would have “a capacity to work external to the police force” (Dr Prior) and “I would not regard [the plaintiff] as totally unemployable… I consider that in any future work it will have to be in a position that is free from the sorts of stressor that he had during his police work” (Dr Rose).

Medical Evidence Received After 1 December 2014

324. The 9 June 2017 MetLife letter then considered both the medical evidence that the plaintiff had advanced since 1 December 2014, together with a number of medical assessments that MetLife itself had commissioned. In the first category was medical evidence from Dr Selwyn Smith (a consultant psychiatrist instructed by the plaintiff’s present solicitors), Dr John McMahon (a clinical psychologist appointed by the plaintiff’s former solicitors), and Dr Inglis Howe Synnott (consultant psychiatrist appointed by the plaintiff’s former solicitors).

325. The parties addressed the part of the 9 June 2017 letter dealing with Dr Selwyn Smith in their submissions, so that part of the letter is wholly reproduced below:

“Dr Selwyn Smith, consultant psychiatrist, was instructed by S&G, presumably in the context of the member’s work injury damages claim. Dr Smith reported on 2 December 2015 and he diagnosed chronic PTSD, comorbid Major Depressive Disorder and Generalised Anxiety Disorder. Dr Smith provided his general views on, amongst other things, recovery rates of PTSD sufferers. He concluded that [the plaintiff] is not fit to undertake employment on the open labour market until retirement age of 67 years. His significant symptomologies would preclude him from engaging in productive work. Dr Smith did not comment specifically on the member’s capacity as at the date for assessment, nor was he asked to turn his mind to the requirements of the TPD definition in the [Policy]. His prognosis was that the member’s condition was unlikely to change more than 3% in the next 12 months”.

326. The 9 June 2017 MetLife letter then dealt with the report of Dr John McMahon, a clinical psychologist. The letter noted that Dr McMahon had concluded that the plaintiff would be “intermittently fit for work in a cloistered environment, performing routine duties without any contact with the general public on a part-time basis” but Dr McMahon’s report also commented that the plaintiff’s volunteer work “demonstrates capacity to engage in purposeful activity which could be transitioned to gainful employment”.

327. MetLife’s 9 June 2017 letter then attended to Dr Wilkins’ reports, starting with Dr Wilkins’ report of 12 December 2016. The letter addressed a number of Dr Wilkins’ reports in the following terms [emphasis original]:

“In his report dated 12 December 2016, Dr Wilkins stated that at the date of his initial assessment on November 2010 it was apparent that [the plaintiff] had become incapacitated to such an extent as to render him unlikely ever to engage in or work for reward in any occupation for which he was reasonably qualified by reason of education, training or experience.

It is apparent that Dr Wilkins' original opinion was based on the member's self-reported history of significant symptoms of anxiety and social isolation (Dr Wilkin's report 20 January 2011) and distressing decline in cognitive function rendering the member mentally feeble and unwell, (Dr Wilkins’ report of 12 February 213 (assumptions which are at odds with the objective .evidence of the extent of the member’s regular social activities at the [SLSC] and the psychometric tests conducted by Dr Roldan. When this further evidence was put to Dr Wilkins he simply adhered to his original diagnosis”.

328. The 9 June 2017 MetLife letter then quoted Dr Wilkins’ description as to the plaintiff’s capacities and then commented on Dr Wilkins’ view about the plaintiff’s capacity to return to work in the following terms, and then drew a comparative conclusion between Dr Wilkins’ reports and those of the other practitioners [emphasis original]:

“Dr Wilkins advised that the social media and surveillance reports corroborate the member's own report of his activities which, he said, are remarkable only for the paucity of adventure and their repetitive nature. Dr Wilkins reported that there was virtually no chance that [the plaintiff] will return to the workforce and he reached this conclusion based on his recent observations of the member.

Dr Wilkins' view does not align with other practitioners who have assessed the member in the past 12 months or so”.

329. The nature of MetLife’s comparisons between Dr Wilkins reports and those of other practitioners is of some importance in the issues joined between these parties.

330. The plaintiff had supplied additional reports to MetLife from Dr Inglis Howe Synnott of 24 May 2016 and from Dr Selwyn Smith. In its 9 June 2017 letter, MetLife was somewhat dismissive of those reports. It dealt with them in the following terms:

“Dr Inglis Howe Synnott (consultant psychiatrist appointed by the member's former solicitors) provided a report dated 24 May 2016. Dr Synnott diagnosed PTSD and concluded that the member was totally incapacitated and that he was psychiatrically incapable of participating in any kind of employment. There is no indication that Dr Synnott (and Dr Selywn Smith) were briefed with the objective evidence which MetLife considers evidences the member's overall capacity being greater than his self-reported symptoms. MetLife is not persuaded that the reports of Dr Synnott and Dr Smith should be considered as directly indicative of the member's likely capacity for work until age 67”.

331. The 9 June 2017 letter then referred to the material that had been produced on subpoena in these proceedings from the Police. This subpoenaed material included an assessment by a psychologist, who examined the plaintiff in 1997 and on a number of subsequent occasions and reported that he “did not and does not suffer from a diagnosable psychiatric illness”. MetLife noted that the psychologist as late as 2009 said that she “had no major concerns regarding his fitness for current duties”.

332. The 9 June 2017 letter then identified the material obtained from the SLSC and the Department of Immigration and Border Protection under subpoena. As to the documentary information obtained from the SLSC, the 9 June 2017 letter described the plaintiff from these materials as being observed at the SLSC “assisting behind the bar, taking telephone calls and other activities” and assisting “the club in various tasks including organising, along with his wife, a social event”. The report noted Dr Roldan’s observation that the extent of the plaintiff’s SLSC activities had not been disclosed to him and Dr Roldan’s opinion that the plaintiff’s “activities with the club were inconsistent with the level of disability [the plaintiff] reported or implied”.

333. The materials produced by the the Department of Immigration and Border Protection under subpoena show that the plaintiff had travelled to Indonesia between July 2010 and May 2016 on eleven occasions (averaging about twice a year) and to Fiji on one occasion.

334. The 9 June 2017 letter then considered the “independent medical assessments”, as it described them, of Dr Roldan, Ms Tyler and Dr Kneebone, who reported to MetLife about the plaintiff after 1 December 2014.

335. MetLife’s 9 June 2017 letter recorded Dr Roldan’s observations that the plaintiff’s daily routine activities “suggest greater level of social interaction and public exposure than implied by him” and that the plaintiff’s overseas travel suggest greater exposure to “new and potentially stressful environments and social interactions than is implied by [the plaintiff’s] disability report”. MetLife recorded Dr Roldan’s view in his report of 18 July 2016 that “he could not say that [the plaintiff] was unlikely ever…due to psychological incapacity to engage in some form of employment of at least 15 hours per week in an occupation for which he is reasonably qualified by reason of his education, training and experience”.

336. MetLife also dealt with Dr Mark Kneebone’s report of 11 October 2016. Dr Kneebone reported that the objective psychometric testing and investigative web based data collection “indicated the very real possibility that [the plaintiff] is exaggerating his levels of impairment”.

337. MetLife further noted that Dr Wilkins in his reply report of 12 December 2016 reported that he “rejected the view that the member may have exaggerated his level of impairment”. MetLife sought to reconcile Dr Kneebone’s opinions, with those of other doctors. Whether that reconciliation was either complete or successful was a matter for debate. MetLife sought to explain the differences between Dr Kneebone’s opinions and those of other doctors in the following passage from the 9 June 2017 letter:

“The member reported to Dr Kneebone that he was able to travel with a support person and confined his travel to local areas due to anxiety. Like Dr Roldan, Dr Kneebone reported that this was inconsistent with the evidence of the member's overseas travel.

Dr Kneebone endorsed the vocational options of Liaison Officer, Compliance Officer and Insurance Investigator, as being suited to the member's general psychological level of functioning, including taking into account restrictions on the member's exposure to the public conflict situations. Dr Kneebone also considered that, with some minimal retraining, the roles of Trainer and Assessor and Workplace Health and Safety Officer would be suited to the member.

Dr Kneebone, unlike Dr Smith and other consultant practitioners, was provided with objective measures of the member's capacity which assisted Dr Kneebone's understanding of the complete clinical picture of the member”.

338. But finally, under the heading “Summary” MetLife summarised its ultimate reasoning and conclusions. This part of the 9 June 2017 letter is set out here in full:

“MetLife acknowledges that there is a divergence of medical opinion, the basis for which appears due, at least in part, to an acceptance of the member's reported symptoms on face value without any objective validity testing or regard to objective material. MetLife considers that weight of the evidence demonstrates that, at the date for assessment and subsequently, the member's general functioning was at a higher level than reported to Dr Wilkins and other medical practitioners. The divergence also arises from the different purpose for which some of the assessments were instructed. For example reports prepared for the purposes of the member's worker's compensation claim do not address the long-term future prognosis required by the TPD definition.

The accuracy of the history given by the member and relied on by treating medical attendants raises a question as to the weight to be given to, and the reliability of, the diagnosis and prognosis postulated on the back of that history. For example, despite the member's insistence and Dr Wilkin's certification that the seventy of his symptoms prevented him from travelling by public transport to attend the assessments instructed by MetLife, the member is able to (and has been able to) regularly travel overseas and two of the member's trips to Indonesia were for periods of over a month.

While Dr Wilkins has the benefit of being the member's treating psychiatrist, Dr Wilkins has maintained the pessimistic prognosis reached at the time of his initial consultation with the member despite being provided with objective evidence calling into question the severity and extent of the member's reported incapacity (for example his activities and regular attendance at the [SLSC] and regular overseas travel). MetLife is therefore inclined to ascribe less weight to Dr Wilkins' reports where it is in conflict with other medical evidence, notably that of Dr Kaplan, Dr Roldan, Dr Kneebone and Dr Prior.

The recent assessments of Dr Roldan and Dr Kneebone evidence that the member's capacity for some work persists. Both express the view that the member would be capable of work in suitable relevant employment for at least 15 hours a week.

Doing its best to evaluate the competing views of the consultant and treating medical practitioners, MetLife considers the views of Dr Kaplan, Dr Roldan, Dr Kneebone and Dr Prior are qualitatively preferred. MetLife notes Dr Prior's cautiously optimistic view that the member had capacity to work outside the NSW Police Force.

MetLife does not dispute that the member suffers from symptoms consistent with PTSD, however MetLife is not satisfied on the proof provided that the member's symptoms have caused the member to be totally and permanently disabled.

MetLife has also had regard to the member's relatively young age, namely 41 years at the date for assessment and currently 48 years old and MetLife has identified suitable vocational options reasonably within the member's education, training and experience and which are 'far removed from policing'”.

339. MetLife then concluded the 9 June 2017 letter by recording its second decision in the following short concluded paragraph:

“PBRI Policy

MetLife has not changed its opinion that the member has not provided proof that, at the relevant date for assessment (while an Insured Member) he was incapacitated to such an extent as to render him unlikely ever to engage in any gainful profession, trade or occupation for which his (sic) is reasonably qualified by reason of education, training or experience”.

340. Partly on the basis of this passage, the plaintiff submits that MetLife has approached the making of the second decision in manner that is wholly derivative from the first decision, by saying that it had “not changed its opinion”.

Analysis of the Second Decision

341. The Second Decision - the Treaty and Conflicting Legal Advices. The plaintiff did not develop an argument based on the Treaty to challenge the second decision. It would have been difficult to do so. By the time of the second decision, the Court of Appeal had found that RGA Australia was not on risk for the plaintiff’s claim and other claims like it, which fell within the Initial Event Sentence.

342. RGA Australia’s non-approval notice to MetLife nevertheless remained extant and does not seem to have been specifically withdrawn. But it was not repeated. The material tendered in the supplementary court book does not found any conclusion that RGA Australia continued to insist on non-approval of the plaintiff’s claim. For that reason, the Treaty can be ignored for the purposes of analysing the second decision.

343. Similarly, when the second decision was made, there was no repetition of the conflict between the legal advices of HWL Ebsworth and Moray & Agnew. None of that conflict carried over into the making of the second decision and can also be ignored in the present analysis.

344. The Second Decision – Reconsidering the First Decision. The plaintiff contends that the second decision did not approach the decision making task correctly. The plaintiff contends that, rather than approaching the matter afresh, MetLife approached the task as to whether or not it should change its mind from the position it reached in the first decision. MetLife contends that it looked at the matter sufficiently freshly for the second decision to stand.

345. On this issue, the plaintiff’s contentions are persuasive. There are several reasons for this. First, the plaintiff’s argument that this was not a genuine reconsideration is borne out by the terms in which MetLife expressed its second decision. MetLife says in its important concluding paragraph that it “has not changed its opinion”. That form of words points to the conclusion that MetLife approached the making of the second decision on the basis of whether it should confirm or change its first decision, rather than to look at the matter afresh as though it had made the second decision without reference to the first decision.

341. Second, other features of the 9 June 2017 letter pointed to the same conclusion. The letter principally considers the additional medical and other evidence since the last decision, and the letter does not expressly put the first decision to one side, as it could have done. MetLife did make this second decision and issued this letter under some considerable time pressure in order to accommodate the plaintiff. The omission of these matters is all the more understandable in those circumstances. Notwithstanding that the omission is explicable this way, the total picture the letter presents is of answering the question whether or not, recent evidence and other material changes the position MetLife had reached in the first decision.

342. Third, another way of approaching this analysis is to ask whether, in making the second decision, MetLife took into account an irrelevant consideration, namely the fact that it had made the first decision. Though MetLife had made the first decision two and a half years before the second decision, that fact was irrelevant to the making of the second decision. It was irrelevant because upon a genuinely open minded and objective reconsideration by MetLife, the plaintiff did not have to move MetLife from the position it had taken in the first decision. All the plaintiff had to do was satisfy MetLife that he was TPD within the Policy at the assessment date. The language of the first and last paragraphs of the 9 June 2017 letter, “The Reconsideration” and “Our Decision”, taken together and in the context of the rest of the letter show that MetLife approached the task at least in part by asking itself the question whether or not it should shift position. This was an irrelevant consideration. And indeed it was the wrong question for MetLife to ask itself.

343. Fourth, there was no separate procedural fairness letter preceding the second decision. But as Mr Sexton SC rightly points out, this letter did set out what MetLife was having regard to and the lack of a separate letter was largely a function of the speed with which MetLife was asked to make the second decision. Thus it is difficult, in my view, to criticise MetLife for a situation created by the plaintiff and I would not set aside the decision on this ground alone. That being said, had a procedural fairness letter been sent, it might have exposed to greater scrutiny this issue about the first decision and saved the second decision.

344. The second decision should be set aside for these reasons.

345. The Second Decision – the Other Challenges. The plaintiff also challenged the way that MetLife had approached the evaluation of medical and vocational evidence and other materials in reaching its second decision and its reasons for that decision. As with the first decision, it is not necessary for every one of these challenges to be considered. These reasons have determined that the second decision should be vitiated on other grounds. For completeness some of the challenges that succeeded are dealt with here.

346. But MetLife’s general case should be briefly set out first. MetLife argued that the plaintiff’s challenges were holding it to too high a standard. MetLife argued that the plaintiff’s analysis was not asking the correct question, which authority required: whether the decision was intelligible and justifiable on the materials before it; not was the decision right. And when addressing each of the plaintiff’s challenges, MetLife stressed the importance of appreciating the overall judgments that it had to make on conflicting evidence.

347. MetLife submitted that in reaching its second decision, overall it can be seen that it considered that the weight of the evidence demonstrated that the plaintiff was able to function at a higher level than reported to Dr Wilkins and other medical practitioners, both at the time of the date for assessment and subsequently. MetLife noted that Dr Wilkins’ view “does not align with other practitioners who have assessed the member in the past 12 months or so”. These other medical practitioners included Dr Kaplan, Dr Kneebone and Dr Prior.

348. MetLife identified the task before it as requiring an evaluation of the competing views of the medical evidence and objective facts. In making that evaluation, MetLife says that it considered that the views of Dr Kaplan, Dr Roldan, Dr Kneebone and Dr Prior were to be preferred to doctors such as Dr Wilkins.

349. MetLife says making those judgments based on the material before it was its role. MetLife argues that its decision was a conclusion that was open to MetLife on the material before it, and was not a decision which, on the material available to MetLife as at 9 June 2017, could be characterised as arbitrary, capricious or as defying logic. But the plaintiff challenged the second decision on specific grounds as follows.

350. But an important defect in MetLife’s reasoning in the second decision is that it does not take into account the affidavit evidence of the plaintiff and another SLSC manager (Mr W). But their evidence, in my view, was important in highlighting that the SLSC did not rely upon the plaintiff to perform any role but he was always a volunteer. MetLife’s continued reliance upon the surveillance material does not expressly take this evidence into account.

351. Another difficulty with the second decision is that MetLife simply says that Dr Wilkins’ view “does not align with the other practitioners” who have assessed the plaintiff. But that is not in my view an adequate analysis of why Dr Wilkins’ view should be rejected, especially when Dr Roldan did not make a finding of fabrication of symptoms by the plaintiff.

352. Finally, MetLife’s second decision refers to the report of Dr Kneebone and Dr Kneebone’s recommendation of treatment which may improve the plaintiff’s condition. But this ignores Dr Wilkins’ comments in relation to Dr Kneebone’s opinion that Dr Kneebone’s treatment should be avoided. To continue to rely upon Dr Kneebone in these circumstances, without inquiring whether the plaintiff might actually obtain the treatment, contrary to Dr Wilkins’ opinion, is unreasonable. The problem is reminiscent of that faced by Ball J in Ziogos at [104].

353. The second decision should be vitiated on these grounds as well.

Conclusion and Orders

359. For these reasons, the Court will declare that both MetLife’s first and second decisions are void and of no effect. Two courses are open at this point. The matter can go back to MetLife and FSS again for further decision, or the Court can proceed to a second stage of inquiry. The authorities suggest that a second stage inquiry is a commonly preferred course after an insurer’s decision is vitiated at the first stage.

360. Upon the assumption that is the course which will be followed, the Court has made directions below for the parties to prepare for a second stage inquiry. As I have not made any credit findings in relation to witnesses in the proceedings, and as I am now familiar with the medical and other evidence relating to the plaintiff, it would be efficient for me to deal with the second stage inquiry. For the present, at least, I will take control of the directions in the proceedings.

361. But if some other procedural course is to be proposed by any party, then that party may file any motion returnable for the next date for directions, which will be 2 August 2018.

362. The plaintiff has been successful at the separate determination of this first stage inquiry. I see no reason in the circumstances why costs should not follow the event. As the issues for separate determination only related to the second defendant, the Court will order that the second defendant pay the plaintiff’s costs of the separate determination. But this is subject to any party applying for a special costs order by motion.

363. For these reasons the Court makes the following declarations, orders and directions:

1. The Court answers the separate questions ordered by Stevenson J for determination pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”), r 28.2 as follows: in refusing to accept the plaintiff’s claim on each occasion on 1 December 2014 and 9 June 2017 the second defendant acted in breach of (a) its general law duties; and (b) its duty to act reasonably in considering the claim made by the plaintiff.

2. Declare that the decision of the second defendant, MetLife Insurance Limited made on 1 December 2014, that it was not satisfied that the plaintiff was totally and permanently disabled within the meaning of the Policy (described in paragraph [22] of these reasons (“the Policy”)), is void and of no effect.

3. Declare that the decision of the second defendant, MetLife Insurance Limited made on 9 June 2017, that it was not satisfied that the plaintiff was totally and permanently disabled within the meaning of the Policy, is void and of no effect.

4. Direct that the parties by 1 August 2018 serve on one another and provide to the Court draft Short Minutes of Order with a view to their preparing for and managing the second stage hearing in these proceedings.

5. Order that the second defendant pay the plaintiff’s costs of the separate hearing.

6. Grant leave to the parties to apply by motion returnable on 2 August 2018 for any special costs orders or directions arising out of these orders.

7. Adjourn the proceedings to Thursday, 2 August 2018 at 9.30am or such other date convenient to the parties as arranged with my Associate.

8. Direct the parties to consult before 2 August 2018 as to whether this judgment can be published in its present form.

9. Order that until 2 August 2018 these reasons may only be published to the parties to these proceedings and their legal advisers.

10. Grant liberty to apply.

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Decision last updated: 02 August 2018