National Mutual Life Association of Australasia Ltd (t/a AXA Australia) v Financial Industry Complaints Service Ltd
[2006] VSC 121
•3 April 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 9703 of 2004
| NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LTD (TRADING AS AXA AUSTRALIA) | Plaintiff |
| v | |
| FINANCIAL INDUSTRY COMPLAINTS SERVICE LIMITED AND OTHERS | Defendants |
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JUDGE: | Bongiorno J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 – 9 December 2005 | |
DATE OF JUDGMENT: | 3 April 2006 | |
CASE MAY BE CITED AS: | AXA v FICS Ltd | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 121 | |
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Insurance – dispute over claim – complaint to industry alternative dispute resolution body – status of complaint and body – whether error in decision – no error found.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Gleeson with Mr J. Pizer | TurksLegal |
| For the First Defendant | Mr D. Meagher QC with Mr D. Masel | Monahan and Rowell |
| For the Second Defendant | Mr. P. R. D. Gray | Piper Alderman Solicitors |
HIS HONOUR:
This proceeding, which was commenced by originating motion on 20 December 2004, was brought by an insurer against its industry’s recognised alternative dispute resolution body, claiming that that body had failed to properly determine a complaint brought against it by a policy holder. The dispute resolution body had resolved the complaint in favour of the policy holder and had rejected the insurer’s allegation of fraud against him. The insurer now seeks that the dispute resolution body’s decision be set aside and the matter be reheard properly. In the interlocutory stages of the proceeding pleadings were ordered and the matter proceeded to trial on those pleadings, affidavits and other relevant documents.
The facts
Kevin Day has been associated with the plaintiff or its predecessor in the insurance industry since at least 1980. Since 2001 he has been an authorised representative of AXA Financial Planning Ltd and since March 2002 he has been an accredited advisor with that company. Taking his own advice, as it were, on 15 December 1995 he took out a professional income protection policy with the plaintiff, AXA. This policy entitled him to weekly benefits should be become “totally disabled” within the meaning of that term in the policy. It also provided benefits for partial disability.
Mr Day’s business as an insurance and investment consultant was carried on through a company, Kevin Day and Associates Pty Ltd in the Glen Innes district of Northern New South Wales. On 7 July 1992 the company obtained a business expenses protection policy from AXA which was designed to protect it against business expenses actually incurred in the operation of the business should Mr Day himself suffer total disability through injury or sickness.
On 26 August 2000, Mr Day suffered a neck injury. On 11 October he lodged a claim with AXA under his income protection policy. In the claim form which he filled in Mr Day said that he ceased work on 11 September 2000 by reason of the neck injury and claimed that he could “do no work”. He said that since the injury he had been unable to do any work in his business or occupation or engage in any other occupation. The claim form which Mr Day signed contained a declaration that it was true, correct and complete and acknowledged AXA’s right to refuse to pay a claim if any false or fraudulent statements were contained in it or if Mr Day failed to advise AXA of any relevant information.
On 1 December 2000 and 29 January 2001 Mr Day submitted progress claim forms to AXA. In each of those forms he stated that he had been unable to attend in any way to his business or any occupation since his accident and signed a similar declaration to that which was contained in the original claim form.
On 12 April 2001 Mr Day answered a questionnaire which he submitted to AXA. In that document he said that on 14 February 2001 he returned to work on a partial basis following his neck injury and that he did not know when he expected to resume full duties. He described the main duties of his occupation before disablement as being “100% administration and sales” and said that since his return to work on a partial basis he had been able to work to 10% of his prior activity.
On 3 April 2001 Mr Day suffered a back injury. On 22 June he lodged a claim with AXA under his income protection policy in respect of that injury and again provided information as to it and its effect on him. In his claim form Mr Day stated that he ceased work on 14 April 2001 and said that he could “do no work”. He answered questions as to whether he had been able to do any work in his business or occupation since the injury occurred in the negative and signed a declaration in the same form as previously.
On 16 August 2001 and 19 November 2001 Mr Day submitted progress claim forms to AXA in each of which he said that since the accident he had been unable to attend in any way to his business or any occupation and signed a similar declaration as to the truth of statements contained in his claim form.
On 20 February 2002 Mr Day submitted a progress claim form to AXA. In that form he said that he returned to part time work on 19 November 2001 and that he had performed “administration and sales about 10%” since that date.
By letter dated 16 August 2002 AXA rejected any further claims by Mr Day. In fact, at that time it had paid a total of $69,575.86 under his income protection policy and had foregone premiums of $1803.30 which would have been otherwise due. It also paid Kevin Day and Associates Pty Ltd a total of $18,181.23 under its business expenses policy and forewent premiums of $277.97 which would have been otherwise due.
On 27 November 2003 AXA filed a writ in the County Court to recover the money which it had paid to Mr Day and his company and premiums which had not been paid by them under the two relevant policies. On 29 December 2003 AXA cancelled both policies.
FICS
Financial Industry Complaints Service Ltd began operation in 1995 as an organisation which dealt with complaints in the life insurance industry. It was then called Life Insurance Complaints Services Ltd. Subsequently it expanded its role to deal with complaints across the whole financial services industry. It changed its name to Finance Industry Complaints Service Ltd. Its purpose now is to provide an external dispute resolution scheme which complies with s 912A(2) of the Corporation Act 2001 (Cth). Section 912A(1)(g) of that Act requires a person holding a financial services licence who services retail clients to be a member of such a scheme. At all relevant times AXA held such a licence and was a member of FICS.
After corresponding with AXA over some period and invoking its internal complaints handling procedure, on 7 July 2003 Mr Day lodged a complaint with FICS through his then solicitors, Nicholsons. This complaint included a lengthy recitation of facts and argument in support of his contention that AXA ought not to have terminated his disability payments or payments to his company under its business expenses policy.
Whilst Mr Day’s complaint was pending AXA commenced its County Court proceeding against him. However, on 16 April 2004 a FICS panel chair, Mr M. Arnold, published a ruling under Rule 42 of the FICS Rules to the effect that it would be inappropriate for FICS to consider Mr Day’s complaint unless and until the County Court proceeding was discontinued or suspended. As a consequence AXA agreed not to proceed with the County Court action until FICS had determined Mr Day’s complaint.
FICS’s rules explain that it is an “independent” body to help customers of the finance industry in the resolution of complaints relating to members of the industry. It offers an initial conciliation process but if that is unsuccessful a matter can proceed to “arbitration” conducted, depending upon the amount at stake, by a single adjudicator or a three person panel which decides the complaint.
The FICS rules impose upon it or, perhaps, the appointed Panel, the obligation of dealing with complaints on their merits and of doing what, “. . . in its opinion, is fair in all the circumstances, having regard to . . .” a number of criteria. The matters which FICS or the Panel must take into account include the law and “general principles of good industry practice and any applicable code of practice”.
The FICS rules also provide that where a panel is convened to arbitrate upon a complaint it must adhere to the rules of procedural fairness. It may deal with the complaint “by reference to the file” or it may convene a hearing, although legal representation is “discouraged”. A panel may inform itself as it sees fit and may seek expert advice.
After AXA suspended the County Court proceeding a FICS Panel consisting of Mr M. J. Croyle, Mr G. Slater and Mr K. Wilson was appointed to determine Mr Day’s complaint. In October 2004 it published its determination. It upheld the complaint and concluded that Mr Day and his company were each entitled to have benefits under their respective policies with AXA assessed in accordance with those policies. However, it also determined that those benefits should be adjusted to take into account actual income generated by such functions as Mr Day had been able to perform whilst he was disabled. The Panel reserved for further consideration any disagreement between Mr Day and AXA as to the assessment of benefits or their adjustment.
By the time the appointed FICS Panel commenced its deliberations AXA had made its position concerning Mr Day’s claims upon it very clear. In a submission to the Panel dated 1 June 2004 it informed the Panel that Mr Day, whom it described as an AXA agent of 22 years standing, had made false declarations in support of claims on the company under policies issued by it. AXA contended that those declarations were made fraudulently, that is knowingly or with reckless indifference to the truth so as to obtain claim monies to which Mr Day was not entitled. In other parts of AXA’s submission this contention was repeated. Thus, at the time the Panel commenced to consider Mr Day’s complaint it was well aware of AXA’s position and, for that matter, Mr Day’s, who denied AXA’s claim emphatically.
In determining Mr Day’s complaint the Panel demonstrated by its reasons that it had at the forefront of its collective mind AXA’s allegation of fraud against Mr Day. It commenced its delineation of the issues between the parties by noting that AXA alleged:
“. . . that the complainant had been fraudulent in seeking benefits for total disability both in relation to (his) neck injury and (his) back injury.”
It detailed AXA’s case as to fraud by noting that AXA alleged that the complainant had not been totally disabled as defined in the policy, had provided incorrect information on various claim forms and had not revealed that he had done some work as an insurance agent and in associated capacities during the period for which he claimed benefits.
The Panel acknowledged Mr Day’s denial of any intention to deceive AXA and his claim that as he was AXA’s agent, who sold only its products, any work he did or income he earned at any time relevant were well known to it.[1]
[1]Determination page 6.
The Panel commenced a discussion of the legal considerations relevant to the case[2] by again referring to the question of fraud, reviewing a number of legal authorities in relation to it and reminding itself of the applicable standard of proof and of the principle discussed by Dixon J, in Briginshaw v Briginshaw[3] as it might apply to an allegation of fraud. It stated that “these principles have guided the Panel in this matter.”[4]
[2]Determination pages 4 – 6.
[3](1938) 60 CLR 336.
[4]Determination page 2.
Although under the sub-heading “Discussion” the Panel defined “the issue” as being whether “. . . from time to time (Mr Day) was in fact ‘working’ within the terms of the policy”, it did so in the context of this being the essence of AXA’s allegation of fraud. That this is so is obvious from the Panel’s then reference to AXA’s submission of 1 June 2004 and the information included with it. It acknowledged that it was upon this material, which included not only Mr Day’s claim forms but also AXA’s business records of its dealings with him as its insurance agent, that AXA asserted that Mr Day had been fraudulent.
The Panel analysed in detail AXA’s allegations and the evidence it relied upon and Mr Day’s response to that evidence. It referred to the parties’ submissions and “voluminous documentation” including AXA’s internal records which, AXA asserted, showed “. . . that (Mr Day) continued to sell new insurance business and provide financial and superannuation advice to new and existing clients of his business during the alleged total disability period”. This period was said to be from 11 September 2000 to 14 February 2001. The Panel also noted that an allegation by AXA that Mr Day was receiving income from other insurers as well as AXA during periods of alleged total or partial disability, which allegations Mr Day denied, was unsubstantiated by any evidence.
In reaching conclusions as to the facts it had to determine, the Panel again addressed the question of fraud in the context of the requirements of the relevant policies. It acknowledged the importance of answers to questions on claim forms because they are the material upon which an insurer determines whether it is liable in any particular instance. It acknowledged that Mr Day conceded that he had given incorrect answers on claim forms. It accepted that he had made incorrect or inappropriate value judgments but concluded that “. . . that is a far cry from having a fraudulent intent, an essential feature of the allegation made against him by (AXA)”.
Finally, the Panel reviewed the evidence before it concerning the work AXA alleged Mr Day performed and the income he received during periods for which he claimed total or partial disability. It referred to the informality of a country insurance agent’s working environment and the expectations of clients derived from a personal relationship. It accepted Mr Day’s explanations and concluded by specifically exonerating him of any intent to deceive or to obtain any unjust benefit from AXA. In other words, the Panel acquitted Mr Day of fraud.
This proceeding
Dissatisfied with the Panel’s determination, AXA commenced this proceeding against FICS and Mr Day. Just prior to trial Mr Croyle, Mr Slater and Mr Wilson, as the Panel appointed pursuant to Rules 45 and 46 of the FICS rules, were added as defendants and an amended statement of claim was filed. That amended statement of claim asserted four errors by the Panel which determined Mr Day’s complaint. Those errors were, that the Panel had characterised the issue to be determined as being whether Mr Day was “working” at relevant times within the terms of the relevant policy and thereby had asked itself the wrong question; that it had failed to ask itself the correct question, namely whether Mr Day had been fraudulent in giving false answers to certain questions on claim forms; that it had failed to consider whether he had been reckless in answering those questions and was thereby fraudulent and that it had misconstrued the word “working” in the relevant policies.[5]
[5]Amended Statement of Claim paras. 14(a), (b), (c) and (d).
AXA’s amended statement of claim contended that the errors it alleged in the Panel’s determination could result in a number of different legal conclusions, entitling it to the relief it claimed. It said that those errors constituted a breach by FICS and/or the Panel of the contract by which AXA was a member of FICS. FICS’s rules constituted the terms of that contract and it sought declaratory relief and/or specific performance with respect to that contract. In the alternative it contended that FICS or the Panel had fallen into jurisdictional error and was therefore liable to judicial review in the nature of certiorari in respect of its determination. Finally, if the contract by which AXA was a member of FICS was an arbitration agreement within the meaning of the Commercial Arbitration Act 1984, (as was claimed by FICS and Mr Day in their defences to AXA’s claim) it sought leave to appeal questions of law arising from the Panel’s alleged errors pursuant to s 38(4)(b) of that Act.
In its defence FICS denied any error by the Panel in reaching its determination and contended that the rules relied upon by AXA applied to the Panel, not to FICS itself and that, in any event, there were other rules which constituted terms of AXA’s contract with it as a member which changed the complexion of that contract to FICS’s advantage in this case. It denied any jurisdictional error by it or the Panel and, finally, claimed that the agreement between it and AXA constituted an arbitration agreement and that the Panel’s determination constituted an award. It pleaded that that award was final and binding on the parties to the arbitration, including AXA. In any event it contended that by virtue of s 38 of the Commercial Arbitration Act the Court had no jurisdiction to set aside or remit an award on the ground of error of law unless leave had been granted pursuant to s 38(4). As no such leave had been granted the only jurisdiction which could be exercised by the Court was to grant or withhold leave under s 38(4). Finally, it pleaded that there was no manifest error of law on the face of the determination which could lead to leave to appeal being granted.
In his defence to AXA’s amended statement of claim Mr Day largely joined issue with AXA, pleaded the arbitration point relied upon by FICS and made appropriate admissions. The Panel did not file a written defence but stated that it would abide the Court’s decision.
AXA’s case
The central plank of AXA’s case is that the Panel made errors in its determination. Indeed, unless it establishes one or more of those errors it cannot succeed on any of the bases upon which it might be entitled to relief in this proceeding. The establishment of such an error is a necessary, if not a sufficient pre-requisite to AXA’s success on each of the cases which it seeks to set up. Unless error is established there can be no breach of contract, no jurisdictional error and no ground upon which leave to challenge the Panel’s determination could be granted by the Court if the process is, as the defendant’s claim, an arbitration. Mr Gleeson of Counsel for AXA did not argue that there was any distinction between the error required to be demonstrated to establish a right to judicial review and error required to found a claim for leave to challenge an arbitrator’s award, although in the latter case, of course, the error must be an error of law “manifest” on the face of the award. Although there was no particular emphasis placed upon the question in the course of his argument it appeared that Mr Gleeson accepted that the error which would be required to establish a breach of contract was of the same order.
It is convenient to examine each of the errors in the determination alleged by AXA’s case as they were pleaded in its amended statement of claim. In doing so the principles expressed in cases such as Minister for Immigration v Wu Shan Liang[6] and Collector of Customs v Pozzolanic[7] must be borne in mind. The reasons of a body such as the Panel in this case are meant to inform and not to be scrutinised over- zealously to seek the identification of some inadequacy from infelicity of language or looseness of expression. In this instance these principles are apposite whether the Panel’s reasons are being examined to determine the existence or non-existence of error constituting a breach of the contract between AXA and FICS, an error going to the Panel’s jurisdiction for the purpose of judicial review or the identification of error sufficient to justify a grant of leave to appeal against an arbitrator’s award.
[6](1996) 185 CLR 259.
[7](1993) 43 FCR 280.
Paragraph 14 (a)
The error pleaded in para 14(a) was in the following terms:
“(a)(The panel) characterised the issue to be determined as whether, from time to time, (Mr Day) was ‘working’ within the terms of the Income Policy and thereby asked itself the wrong question;”
In its argument AXA submitted that where, on page 6 of its determination, the Panel said:
“The issue is whether from time to time, the complainant was in fact ‘working’ within the terms of the policy.”
it misstated the issue it had to determine. AXA submitted that the Panel asked itself the wrong question because what was at issue was not whether Mr Day had been working within the terms of the relevant policy but rather whether he had made a fraudulent claim within the meaning of s 56 of the Insurance Contracts Act 1984 (Cth) so as to entitle AXA to refuse payment. It referred to To v Australian Associated Motor Insurers Limited[8] and in particular to a passage from the judgment of Buchanan JA[9].
[8](2001) 3 VR 279.
[9]Ibid at 285.
Whilst taken alone, out of context, the passage relied upon by AXA in the Panel’s determination might appear to ask the wrong question or at least to omit some of the necessary characteristics of the right question. But a reading of the determination as a whole demonstrates that the passage referred to should not be interpreted as meaning that this was the only issue for the Panel’s determination. An analysis of the structure of the determination demonstrates that this is so. It was necessary for the Panel to consider the question of whether Mr Day had been working or not working at particular times in order to examine the factual basis for AXA’s allegation that his claim was fraudulent in that he had deliberately or recklessly given false answers to questions on claim forms.
Before the allegedly erroneous passage the Panel had dealt with issues of injury. After it there was a discussion of the question of disablement. In that part of the determination in which the impugned passage appears the Panel was merely distinguishing issues before it upon which there was no dispute from those upon which there was. No error as alleged by AXA is demonstrated in that part of the Panel’s determination.
Paragraph 14(b)
Paragraph 14(b) of the amended statement of claim alleges an error by the Panel in failing to ask itself whether Mr Day had been fraudulent on the basis that he gave false answers, whether deliberately or recklessly, to questions on claim forms concerning whether he had been able to do any work in his business or occupation and had been able to attend in any way to his business or occupation at times relevant to his claims.
Commencing at page 6 of the determination the Panel set out AXA’s contentions on the issue of fraud from correspondence between it and Mr Day and from its submissions to the Panel. It expressed no doubt as to AXA’s case. It noted that AXA urged the conclusion that Mr Day had been deliberate and deceitful in answering questions on the various claim forms which he had submitted to it.
In particular, the Panel referred to AXA’s submission to it of 1 June 2004 in which it set out its allegations of fraud against Mr Day and responded to his case. That submission, which was before this Court, was of some 15 pages. After reading it the Panel could have had no doubt as to AXA’s allegations – that Mr Day had made fraudulent claims in that he had knowingly given false information to AXA in support of those claims or had been reckless in answering questions on AXA’s claim forms – such recklessness amounting to intent.
In determining the question of fraud the Panel made a number of findings; that AXA had been aware at all times of all Mr Day’s earnings from his business both whilst he claimed whole or partial disablement and otherwise and that it did not dispute the medical evidence which supported Mr Day’s claims. With respect to the neck injury the Panel found that Mr Day conceded that he had undertaken various tasks in relation to his business which were not disclosed to AXA but that such activity was “sporadic and minimal”. It found that Mr Day was entitled to be paid benefits by AXA as a result of his neck injury for periods which it specified.
With respect to Mr Day’s back injury the Panel noted AXA’s reliance on its own records as to Mr Day’s earnings and his activities as its agent. The Panel found that insofar as Mr Day engaged in any activity during the period of his claimed disability such activity was not “work” within the terms of the policy. The Panel’s finding amounts to a finding that such activity was de minimis. Again, it found Mr Day to have been totally disabled for a period which it specified.
In respect of both Mr Day’s neck and back claims the Panel accepted his contention that income which he received during periods of disability was related to activity undertaken outside those periods. It noted that AXA did no more than assert the contrary whereas Mr Day had responded to AXA’s allegations “identifying the source of the receipts”. It found his explanation as to such activity as he did undertake “plausible”.
The Panel set out four matters which led it to reject the allegation of fraud against Mr Day, namely, the fact that he was genuinely injured, his full and frank admission with considerable detail of his dealings with AXA, AXA’s knowledge of his work activities and that none of AXA’s allegations about Mr Day’s income established an intent to deceive. When these matters are added to the findings to which reference has already been made no error can be identified in the question which the Panel asked itself as to whether Mr Day had been fraudulent.
Paragraph 14(c)
This paragraph alleges that the Panel was in error in that it considered only whether Mr Day set out to deceive AXA deliberately or intentionally and did not consider whether he had been reckless.
In its determination the Panel set out its views of the law as to fraud.[10] In that passage it quoted from the judgment of Bergin J in Timothy Muggleston v National Mutual Life Association of Australasia Ltd[11] which itself referred to cases from Derry v Peek[12] in 1889 to Tyndall Life Insurance Company Ltd v Chisholm[13] in 1999. The passage from Muggleston was unremarkable and, with respect to Bergin J, correct. The Panel embarked upon its task having acknowledged a correct definition of fraud. It said that it followed the principles set out in Muggleston in deciding the complaint. There is no warrant for concluding that on the occasions on which it referred to fraud in the course of its determination it did not include fraud constituted by recklessness.
[10]pp. 4 – 6.
[11][2004] NSWSC 913.
[12](1989) 14 App Cas 337.
[13][1999] SASC 445.
In its determination the Panel dealt specifically with Mr Day’s state of mind when he gave incorrect answers to questions which he answered on AXA’s claim forms. It characterised those answers as having been the result of an incorrect value judgment on Mr Day’s part. Such a characterisation is inconsistent with reckless indifference to the truth but the fact that it was made lends weight to a conclusion that the Panel considered the question.
AXA has not established error in the Panel’s consideration in the manner it alleged in paragraph 14 (c) of the amended statement of claim.
Paragraph 14(d)
The complaint pleaded in paragraph 14(d) of the amended statement of claim asserts that the Panel misdirected itself or misconstrued the meaning of the word “working” in the policy by concluding that to be “working” a person must be performing a function that actually generated income and must be performing that function in more than an incidental sense.
In its argument AXA submitted that working meant performing any activity or function of a person’s occupation whether income producing or not. It referred to cl 2 of the relevant policy which contains the definition of total disability in these terms:
“The person insured is totally disabled if, because of an injury or sickness, he or she:-
●Cannot do at least one of the income producing duties of his or her occupation;
●Is not working; and
●Is following the advice and under the regular care of a medical Practitioner.”
The Panel referred to the question of whether Mr Day was working or not at relevant times and acknowledged that a person must be “not working” before they are entitled to total disability benefits under the policy. With respect to both Mr Day’s neck injury and his back injury it found that he was totally disabled for the requisite period (14 days) before being partially disabled within the meaning of those terms in the policy even though it also found that he engaged in some activity during the time that he was disabled. The Panel described such activity, which involved only the signing of documents on very few occasions and the making of phone calls, variously as “sporadic” or “minimal”. It was entitled to do so.
To construe the word “working” as requiring some minimal threshold of activity before it can be applied is not a misconstruction. Whilst it might be difficult to delineate that threshold in any particular case, in this case the Panel was entitled to disregard the minimal activity which it described when it decided that Mr Day was not working during the period when that activity was undertaken. It was a matter for it to determine. It determined it.
AXA has not established any error in the Panel’s determination in the respect alleged in para 14(d) of its amended statement of claim.
Conclusion
The questions committed to the Panel by the FICS process which AXA raised by its allegations against Mr Day were for the FICS Panel to decide. It decided those questions adversely to AXA. There was no error in its having done so. This proceeding is not an appeal. No matter how AXA’s claims are put they are claims as to process, not as to merits. It has demonstrated no process error.
The consequence of AXA’s failure to identify errors in the Panel’s determination means that FICS was not in breach of its contract with AXA, whatever were the terms of that contract nor is FICS or the Panel liable to judicial review in the nature of certiorari. Whether the procedure followed by FICS and the Panel amounted to an arbitration, so that the parties to that procedure are bound by the provisions of the Commercial Arbitration Act, does not now arise for determination.
The proceeding brought by AXA will be dismissed with costs.
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