Rumble v Host-Plus Pty Limited

[2007] NSWDC 203

CITATION:	Rumble v Host-Plus Pty Limited & Anor [2007] NSWDC 203
HEARING DATE(S):	4 -5 October 2007
JUDGMENT DATE:	10 October 2007
JURISDICTION:	Civil
JUDGMENT OF:	Goldring DCJ
DECISION:	Verdict for the first and second defendant
CATCHWORDS:	Contract - breach of covenant by insurer under superannuation scheme - duty of insurer - duty of Trustee - function of court
LEGISLATION CITED:	Superannuation Industry (Supervision) Act 1993
CASES CITED:	Sayseng v Kellogg Superannuation Pty Limited & Anor [2003] NSWSC 945 Hannover Life Re of Australia Limited v Sayseng [2005] NSWCA 214 Edwards v The Hunter Valley Co-op Dairy Co. Ltd & Anor (1992) 7 ANZ Ins Cas 61-113 at 77,536 and 77,537 Rapa v Patience (unreported, 4 April 1985) Halloran v Harwood Nominees Pty Ltd [2007] NSWSC 913 SZBYR v Minister for Immigration and Citizenship (2007) 235 ALR 609, esp at [25] Minister for Immigration and Ethnic Affairs v Wu Shing Liang (1996) 185 CLR 259 at 272
PARTIES:	Nathan Lyle Rumble (Plaintiff) Host-Plus Pty Limited (First Defendant) National Mutual Life of Australasia Limited (Second Defendant)
FILE NUMBER(S):	5131 of 2006
COUNSEL:	Mr R.B. Petrie (Plaintiff) Mr D.F. Villa (First & Second Defendant)
SOLICITORS:	P.K. Simpson & Co (Plaintiff) Turkslegal (First & Second Defendant)

JUDGMENT

1 HIS HONOUR: The principal issue in this case is whether it was reasonable, in all the circumstances, for the defendants, to find that the plaintiff, Nathan Rumble, was not totally and permanently incapacitated for work.

2 The issue arises because such a finding was made and communicated by the defendants to the plaintiff in 2006 or 2007, after these proceedings had been commenced. There is a dispute as to the date of the rejection, but that is immaterial, given my findings in this matter.

The plaintiff’s case

3 I set out the relevant parts of the Amended Statement of Claim:

1. At all material times the First Defendant was the Trustee of the HOST-PLUS Superannuation Fund (hereinafter called “the Trust Fund”) by virtue of a . . .Trust Deed which document was executed by the Trustee on 8 February 1988, together with various amendments made thereto. The Trust Fund was a trust established to provide superannuation benefits for persons employed in the Hospitality Industry (as defined therein).

2. At all material times the plaintiff was an employee of The Humble Fishmonger Pty. Ltd trading as Nick’s Seafood Café. By virtue of such employment, the plaintiff became a member of the Trust Fund referred to above.

3. Under the provisions of the Trust Deed, members became entitled to certain lump sum benefits, calculated in accordance with the Trust Deed, should they suffer “total and permanent disablement”.

4. Under the Trust Deed “permanent and total disablement” is defined to “have the same meaning as contained in any policy or policies of assurance or insurance effected by the Trustee pursuant to sub-rule (5) of Rule 5 of the Deed” as set out in Paragraph 7 below.

5. At all material times the Second Defendant carried on business as a life insurer. By a contract of insurance made between the First and Second Defendants (hereinafter called the “contract of insurance”), the second Defendant agreed to provide certain benefits to members of the said Trust Fund.

6. In particular, the said contract of insurance provided payment to a member who suffered “Total and Permanent Disablement”. Total and permanent disablement is defined under the said policy of insurance as follows:

“Totally and Permanently Disabled” in relation to an Insured Member means:
Part (a) Unable to Work
When all of the following apply to the Insured Member:
An injury or sickness stops the Insured Member working in his or her usual occupation continuously throughout the TPD waiting period;
After considering all evidence satisfactory to the Insurer, the Insured member has become incapacitated to such an extent as to render the Insured member unable ever to engage in or work for reward in any business, occupation or regular duties for which he or she is reasonably qualified by education, training or experience.
For the purpose of this definition:
Usual business occupation or regular duties means Permanent or Casual Employee or Self-employed member (as applicable) under the policy; and
It is immaterial whether a business, occupation or regular duty is paid or unpaid.”

7. By virtue of his membership of the Trust Fund referred to above, the Plaintiff was at all material times an insured person under the said contract of insurance and thereby entitled to receive payment of benefits to him or on his account if incapacitated to such an extent that he suffered total and permanent disablement.

8. In forming the opinion mentioned in Paragraph 7 above, the Second Defendant is required to form its own opinion fairly and reasonably, on consideration of the extent of the Plaintiff’s incapacity, his reasonable skills and to act towards the Plaintiff with the utmost good faith.

9. As Trustee, the First Defendant was subject to covenants for the benefit of the members of the Fund, including the Plaintiff, to:

(a) Exercise in relation to all matters affecting the entity, the same degree of skill, care and diligence an ordinary prudent person would exercise in dealing with property for whom the person felt morally bound to provide;
(b) Ensure that the Trustee’s duties and powers are performed and exercised in the best interests of the beneficiaries of the Trust;
(c) Act at all times in accordance with the Governing rules as defined in Section 10 of the Superannuation Industry (Supervision) Act 1993, as amended (hereinafter called the “Act”).

10. At all material times the Second Defendant was a life insurance company within the meaning of Section 10 of the Act.

11. On or about 6th October 2001, the Plaintiff suffered injury to his back and legs, with consequent depression, whilst in the course of his employment with Nick’s Seafood Café, when a chair upon which he was sitting collapsed and he fell to the floor.

I interpose that the foregoing matters are either admitted on the pleadings or, with the possible exception of the plaintiff’s depressive illness, are conceded. The following paragraphs of the pleading raise the issues for determination.

12. As a result thereof the Plaintiff became incapacitated to such an extent that he:

Has been stopped from working in his usual occupation continuously throughout the TPD waiting period; and
Is unable ever to engage in or work for reward in any business, occupation or regular duties for which he is reasonably qualified by education, training or experience.

13. On or about 17.10.2002, the Plaintiff applied to the First Defendant as Trustee for the fund for benefits for total and permanent disablement. His application was refused by the Second Defendant by letter dated 17.11.2006 and by the First Defendant by letter dated 30.11.2006. Thereafter, the plaintiff requested that the decision of the Second Defendant be reviewed. By letter dated 11.07.2007, the second defendant confirmed its decision to decline the plaintiff’s claim. Such decision was notified to the plaintiff by the First Defendant by letter dated 01.08.2007.

19. Further, or in the alternative, the Second Defendant has, in breach of the said policy of insurance, declined to pay benefits to or on behalf of the Plaintiff in respect of his total and permanent disability.

PARTICULARS
(a) The Second Defendant did not form its opinion fairly and reasonably in considering the extent of the Plaintiff’s disablement or his reasonable qualifications in deciding that he was not totally and permanently disabled as defined.
(b) The Second Defendant did not act with the utmost good faith towards the Plaintiff.
(c) The Second Defendant misconceived the question it had to determine.
(d) The Second Defendant did not give proper and reasonable consideration to the information provided to it.
(e) The Second Defendant did not properly consider the medical evidence placed before it in forming its opinion rejecting the Plaintiff’s claim.
(f) The Second Defendant misapplied or failed to consider the criteria contained in the definition of total and permanent disablement in deciding to reject the Plaintiff’s claim.

4 Most of the allegations of fact, as opposed to allegations of breach of duty, are admitted. Some matters pleaded were not pursued at the hearing. There was a dispute about the dates of rejection of the claim.

5 There was some dispute about the jurisdiction of this Court to grant the relief actually claimed, namely, declaratory relief. The defendants say that such matters, being in the main issues relating to the rights of a beneficiary under a trust, fall within the exclusive jurisdiction of the Equity Division of the Supreme Court. Again, it is not necessary for me to determine this issue, given the findings I make.

The duties of the first and second defendants

6 The duties of a trustee and an insurer in this type of situation was clearly stated by Bryson J (as he then was) in Sayseng v Kellogg Superannuation P/L & Anor [2003] NSWSC 945, approved in Hannover Life Re of Australia Limited v Sayseng [2005] NSWCA 214. Bryson J described the duties of the insurer, Hannover, at [82], applying Edwards v The Hunter Valley Co-op Dairy Co. Ltd & Anor (1992) 7 ANZ Ins Cas 61-113 (McLelland J) at 77,536 and 77,537:

“To my reading this passage shows:

There was an implied obligation on Hannover to consider and determine whether it should form an opinion on the matter which was a condition of its own liability.
That obligation involved consideration and determination of the correct question.
Hannover was under a duty of good faith and fair dealing which required it to have due regard for the interest of the claimants, meaning Mr Sayseng as well as the Trustee.
Hannover was obliged to act reasonably in considering and determining what its opinion was.
If the view taken by Hannover can be shown to have been unreasonable on the material before Hannover, its decision can be successfully attacked.
If Hannover’s decision is successfully attacked, the matter upon which Hannover’s opinion was required becomes one for determination by the Court.”

7 The duties of a trustee are somewhat different, but consequent on the duties of the insurer. His Honour considered these duties at [61]-[77], applying particularly what McLelland J had said in Rapa v Patience (unreported, 4 April 1985). The principles developed in Sayseng’s case were approved and applied in Halloran v Harwood Nominees Pty Ltd [2007] NSWSC 913.

8 In the event, the plaintiff’s contentions were confined to the issue of whether, in the circumstances of this case, the second defendant had acted reasonably. I am mindful that the inquiry I must undertake is not an appeal or a review on the merits, but simply an enquiry as to whether a reasonable person might have made the decision which the second defendant in fact made: see SZBYR v Minister For Immigration and Citizenship (2007) 235 ALR 609, esp at [25], applying Minister for Immigration and Ethnic Affairs v Wu Shing Liang (1996) 185 CLR 259 at 272.

The circumstances of the claim

9 About 12 months after his fall at work, the plaintiff claimed the total and permanent incapacity benefit. There is little doubt, except for the report of Dr Sekel, which I shall discuss below, that he suffered an injury to his lower back which has caused him significant pain, radiating to other parts of his body, and that there are consequent sequelae. He also reports problems of frequent and painful urination and urinary incontinence, dating from 6 October 2001. There is no physical evidence linking this condition with his back injury. Until the date of hearing, there is no dispute that he had been unable, by reason of his injuries, to perform his previous work as a waiter. At least up until the beginning of 2003 all the doctors who examined him found that the plaintiff was not fit to work as a waiter, but the full extent of his incapacity was not clear. Indeed, with one exception, there is no medical report in evidence that does not state that at any time since 6 October 2001, the plaintiff has been unfit for work as a waiter.

10 A very large number of medical assessments of the plaintiff's condition have been obtained since October 2001. The defendants did not refuse to meet the claim until a date in 2006 or 2007. On previous occasions the defendants had deferred consideration of the claim pending receipt of further medical reports.

Was the decision unreasonable: Dr Sekel’s report

11 My determination of the issues depends largely on the significance I attach to the report of Dr Richard Sekel, who examined the plaintiff on the instructions of the second defendant in March 2006. This doctor was provided with a good deal of the previous medical evidence now before me. It is, or may be, significant that he was also furnished with the report of a Dr Harold Stenning, dated 5 October 2001, that is, the day before the injury that gives rise to these proceedings. Dr Stenning’s report arises out of injuries that the plaintiff suffered in June 1999, when he was employed as a waiter at the Waterfront Restaurant. He was carrying a bank of lockers downstairs with another employee, when the other employee slipped, throwing the weight onto the plaintiff. He took two rostered days off work to recover, but did not take any time off work as sick leave. He recovered sufficiently to return to work as a waiter. He did bring proceedings under the workers compensation legislation in respect of the back injury, and ultimately received some compensation. He, or his solicitors, also sought a medico-legal report from Dr Stenning, and this report is addressed to his solicitors.

12 In this report, Dr Stenning refers to complaints of continuous back pain from the date of injury to the date of examination.

13 When Dr Sekel saw the plaintiff, he took a history. In this history, the plaintiff did not tell the doctor of any back injury or medical problems with his back before the incident on 6 October 2001. Dr Sekel asked specifically about this, because he had previously read Dr Stenning's report. Dr Sekel also formed the view that the plaintiff was not only concealing the truth about his medical history, but also that he was exaggerating his pain and the extent of his injury. He made observations about the plaintiff, despite his complaint of urinary incontinence, not going to the toilet during the 2 hours he spent with Dr Sekel. He also observed the plaintiff, while sitting casually, raising his legs to a far greater extent than he said he was able to do during the formal examination. He made other observations adverse to the plaintiff. He formed the opinion that there was nothing physically wrong with the plaintiff and that he was fully fit to return to work as a waiter.

14 The second defendant, acting through the first defendant, had, at the material time, provided a copy of Dr Sekel's report to the plaintiff's solicitors, asking them to respond within a limited time. They did not do so. However, a couple of months after receiving Dr Sekel's report, the plaintiff's solicitors forwarded to the first defendant a report by Dr Mahony. Dr Mahony had become the plaintiff's treating orthopaedic surgeon. His report is somewhat terse, but expresses the view that the plaintiff was unfit to work as a waiter. He did not specify any timeframe or duration for the plaintiff's unfitness. He did not refer specifically to injuries the plaintiff may have received before 6 October 2001.

15 A further point arises in connection with Dr Sekel’s report. In evidence before me is a significant amount of radiological material. From shortly after October 2001, this material reports a disc prolapse at L5/S1 level. Until radiological reports obtained in 2006-7, there appears to be no reference to any impingement on or restriction of the nerves as a result of this prolapse, but later reports (not available before the defendants made and communicated their decision) suggest that nerve compression cannot now be eliminated as a possible cause of the plaintiff's pain. Dr Sekel did not have the benefit of recent radiological reports and attached great weight to the absence of objective signs of the physical cause of the plaintiff's injury.

16 The plaintiff's position is that Dr Sekel's report is so inconsistent with all the other medical evidence, that no reasonable person could have placed any weight on it.

17 I cannot accept that the plaintiff's contention that no reasonable person in the second defendant's position could have acted upon Dr Sekel’s report. While it might not persuade a court to accept that, on the balance of probabilities, it is correct, it is not so inconsistent with other evidence that it would be unreasonable to place reliance on it.

18 I am satisfied that the second defendant meticulously followed the requirements of procedural fairness applicable to a person in its position. When it received Dr Sekel’s report, it sent it to the plaintiff and gave him an opportunity to respond. The response, in the form of the report from Dr Mahony, was not entirely satisfactory and certainly does not answer many of the issues raised by Dr Sekel. It may still be possible for the plaintiff to produce evidence, including opinion that refers to the most recent radiology and specifically addresses the plaintiff’s prospects for employment, after he has undertaken pain management, which meets the criticism of Dr Sekel, and if it does, given the very different view formed by Dr Sekel as opposed to all the other medical experts, it would then be unreasonable for the defendants to place any weight on Dr Sekel’s opinion. Up to the date of hearing, it was not.

Was the decision unreasonable: the pain management program

19 There are, however, other reasons why I could not find the response of the second defendant, in these circumstances, to be unreasonable. Early in the history of this matter, the plaintiff saw a neurosurgeon, Dr Sheehy, and a rehabilitation specialist, Dr Lewington. Both these doctors regarded it as essential that the plaintiff undergo a pain management program. Dr Lewington arranged for him to be assessed by the Pain Management and Research Centre at Royal North Shore Hospital. Dr Molloy, the Director of the Chronic and Cancer Pain Programme at the Centre, and two other health professionals, assessed him and found him suitable for the ADAPT program on 27 May 2002. However, at that time, the program had a cost of $5,500. The doctors all recommended to the workers compensation insurer that the insurer meet this cost, but it refused to do so. No evidence was before me as to the reason for this decision, but it seems odd and extremely harsh on the plaintiff as to why payment for this essential treatment should have been refused. I propose to send a copy of these reasons to the Workers Compensation Commission so that the actions of the workers compensation insurer, EMI, may be investigated. Those actions seem to be to be contrary to the aims of the Workplace Injury Management and Workers Compensation Act 1998.

20 In 2003, the plaintiff settled proceedings in the Compensation Court and received a cash payment. This amount was more than the cost of the ADAPT pain management program. It appears that the plaintiff did travel to Thailand and India and receive massage therapy there. He did not, however seek entry to the ADAPT pain management program at Royal North Shore Hospital. I am also curious as to why, as part of the settlement negotiations of the workers compensation claim, the plaintiff’s solicitors did not insist that payment of the cost of the pain management program by the insurer be part of the terms of settlement. They had the medical reports and were aware of how important the doctors considered proper pain management to be for the plaintiff.

21 The question that the defendants needed to address was whether the plaintiff “has become incapacitated to such an extent as to render the [plaintiff] unable ever to engage in or work for reward in any business, occupation or regular duties for which he or she is reasonably qualified by education, training or experience.”

22 The medical evidence before me leads inevitably to the conclusion that this question could not be answered unless and until the plaintiff had undertaken a pain management program such as the ADAPT program. There was sufficient medical opinion to the effect that after completing such a program the plaintiff might be fit for some type of work. It certainly was not necessary for him to be fit for work as a waiter; but some of the doctors expressed the opinion that even within the hospitality industry, in which the plaintiff had been continually employed since leaving school, and even while he was still at school, there was possibly work available which he could do. If he could work, he would not fall within the definition. The defendants were quite correct in deferring a decision until he had at least attempted to undertake a pain management course of the type indicated by the treating doctors. Deferring the claim pending completion of the pain management program would, in my view, still be a reasonable course for the defendants to follow, even today.

23 I have every sympathy for the plaintiff, who, on the balance of probabilities, may well be found to be totally and permanently incapacitated. I assume that he did not undertake the pain management program or obtain fuller expert reports in answer to Dr Sekel because he lacked the means to do so. Despite this, the task of the court is clear.

24 There will, accordingly, be a verdict for the first and second defendant.

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