Virag, Robert v United Super Fund Pty Ltd & Hannover Life; Re Australasia Ltd
[2009] VCC 852
•15 June 2009
| IN THE COUNTY COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE CIVIL DAMAGES – COMPENSATION GENERAL DIVISION | |
| No. CI-07-03895 | |
| ROBERT VIRAG | Plaintiff |
| v | |
| UNITED SUPER FUND PTY LTD | First Defendant |
| (ACN 006 261 623) | |
| and | |
| HANNOVER LIFE RE AUSTRALASIA LTD | Second Defendant |
| (ACN 062 395 484) | |
| JUDGE: | HIS HONOUR JUDGE WISCHUSEN |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 16, 17, 18, 25 and 31 July and 1 August 2008 |
| DATE OF JUDGMENT: | 15 June 2009 |
| CASE MAY BE CITED AS: | Virag, Robert v United Super Fund Pty Ltd & Hannover Life Re Australasia Ltd |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0852 |
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REASONS FOR JUDGMENT
Catchwords: Total and permanent disablement insurance cover under industry superannuation scheme, avoidance by insurer on grounds of non disclosure and misrepresentation, whether common law or Insurance Contracts Act 1984 (Cth) applies, whether grounds for avoidance established.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr McCredie | Zaparas Lawyers |
| For the Defendants | Mr Christie | Moray & Agnew |
| HIS HONOUR: |
1 On 4 April 2006, the plaintiff, Robert Virag, injured his lumbar spine whilst unloading a heavy piece of machinery from a truck. The injury has rendered him totally and permanently disabled for work. He is now thirty-four years of age.
2 The sole issue in the case is whether the plaintiff is entitled to the benefit of seven extra units of death and total and permanent disablement insurance cover which he took out through his industry superannuation fund in June 2005.
3 The background circumstances are not in dispute.
4 The plaintiff has worked in labouring jobs since leaving school. In December 1998, the plaintiff commenced employment with H & B Fencing and Gates Pty Ltd. He was employed as a labourer. His duties related to the supply and construction of fencing for building sites, commercial premises, car parks, tennis courts and, at times, for large public events – such as the Melbourne Grand Prix.
5 The work he performed was extraordinarily heavy. He frequently lifted and carried large rolls of cyclone wire and lengths of galvanised steel posts weighing more than 50 Kilos – up to 100 kilos in some instances. He erected and dismantled great lengths of fencing. He dug holes and handled bags of cement. He worked seven days a week, often more than 10 hours a day.
6 Unsurprisingly, the work caused him aches and pains from time to time and over the years, he suffered from shoulder, neck, back and leg pains which he attributed to muscle soreness resulting from the repeated strain and effort his work routinely required.
7 His work also exposed him to mental stress. The stress arose from his dealings with other workers, customers, builders, unions and suppliers.
8 Apart from some symptoms which caused him to attend for medical advice and treatment in late 2004 and February 2005 (to which I will return later in these reasons), the plaintiff’s health was good and, despite the rigorous nature of his work, he was able to work in the way I have described until the injury of April 2006.
9 On 15 February 1999,[1] the plaintiff joined the Construction and Building Union Superannuation Fund (“CBUS”). When he joined, he took out three “units” of death and total and permanent disablement insurance cover.[2]
[1] Court Book (“CB”) CB 149
[2] CB 156
10 Through CBUS, the insurance cover in respect of those units was provided by an underwriter which had entered into a Group Life Policy with first defendant, United Super Pty Ltd, as trustee of the CBUS Fund (“the Trustee”).
11 According to the Trust Deed, upon the death or total and permanent disablement (“TPD”) of a member, two amounts were payable – first, the “Member’s Retirement Credit”, being the member’s own contributions and those of his employer and earnings thereon and, secondly, the “Insured Benefit”, being the proceeds of insurance the Trustee had effected on the life of the member.[3]
[3] CB 80
12 In respect of the Insured Benefit, premiums were deducted from each member’s employer’s contributions to the fund, in proportion to the number of units the particular member had taken out (up to a maximum of ten units), at a rate agreed between the Trustee and the underwriter from time to time.
13 On 1 April 2002, the second defendant, “Hannover”, commenced to provide Group Life Policy cover to CBUS and a written policy of insurance was taken out. As I understood it, Hannover took over responsibility for all existing units of cover then held by members of CBUS from the previous underwriter.
14 On 1 April 2005, perhaps after negotiations, a new policy of insurance (“the policy”) was entered into between Hannover and the Trustee on CBUS’ behalf.[4]
[4] CB 30-59B
15 In June 2005, the plaintiff was working on a “Bunnings” site in Burwood Road. A site meeting was called by the CFMEU shop steward. One hundred or more workers on the site attended. Amongst the speakers was a representative from CBUS. By reference to recent fatal accidents on building sites, the CBUS representative encouraged CBUS members on the site to consider whether they had sufficient insurance cover, and if they did not, to take out more cover. She informed them of the availability of information booklets and application forms which were provided in a box, along with pencils, at the meeting. The CBUS representative offered help in completing the forms and in answering questions.
16 On that day, following the meeting, the plaintiff completed an application form,[5] including a personal health statement,[6] and later posted the form to CBUS. The application was for seven extra units of death and TPD cover.
[5] Transcript (“T”) 68, CB 129
[6] CB 129
17 On about 28 June 2005, the plaintiff’s application for seven units of additional death and TPD cover was accepted by CBUS, acting on Hannover’s behalf. Thereafter, the appropriate premiums were paid in respect of the seven units of cover.
18 After the plaintiff became disabled, he applied for the TPD benefit.[7] The Trustee accepted the TPD claim. Later, CBUS advised the plaintiff that Hannover had rejected his claim in respect of the additional seven units on the grounds of non disclosure[8]. After review by the Trustee, CBUS advised the plaintiff that the Trustee also took the view that the plaintiff was entitled to only three units of cover, because of non-disclosure in respect of the seven units.[9]
[7] CB 192-4
[8] CB 199
[9] CB 199B
19 Shortly stated, the non-disclosure alleged related to the plaintiff’s attendances upon his doctors in late 2004 and February 2005, and the reasons for them.
The evidence
20 Evidence was given by the plaintiff and his treating general practitioner, Dr Corbus de la Porte. The defendants also called Ms Alice Hadjialexiou, Mr John Leonard and Mr Roelef Roozendaal in relation to insurance matters. Documents were tendered from the joint Court Book.
21 The plaintiff was born in Romania on 10 May 1974. He attended school until Year 8 and came to Australia in 1988. He described his English as fair. After a year of language studies he worked as a labourer until commencing employment with H & B Gates & Fencing Pty Ltd. He described the physical and time demands of his work in some detail.[10] For about a year in 2002 he worked for another fencing company called Keena Fencing, performing similar duties, returning, in May of 2003, to H & B Gates & Fencing Pty Ltd, this time as a “senior fencer” with more responsibility. The additional responsibilities involved dealing with clients, shop stewards, unions, managers and some supervision work. The plaintiff said he worked an average of 84 hours a week and had one rostered day off per fortnight which was taken only sometimes.
[10] T53-T54
22 The plaintiff joined CBUS on 15 February 1999.
23 In relation to his health, the plaintiff said that he had attended the Millennium Medical Centre in connection with a sore tooth and sore shoulder and, when reminded, said he had attended there on 11 February 2005.
24 The plaintiff’s evidence in relation to that attendance was:
“Q: What had caused you to go and see the doctor on 11 February
2005? What had led to that?---A: Could've been from the day before. Q: Yes?--- A: Could've had a big job, installing a gate of some sort. Where it
involved a lot of very heavy lifting.Q: When did the back become sore?--- A: In the morning. Q: The morning of the day before?--- A: When - when I woke up. Q: When you woke up?--- A: Yes. Q: What did you do?--- A: Didn't take much notice at first, but after, decided to - yeah, go see
- go see the doctor and - - -Q: Why did you go and see the doctor?--- A: Usually just rub some - some cream, and that would make it go
away.Q: What did you tell the doctor, as well as you can recall?--- A: I'd say I just had a big day at work, as we usually did, and just
pulled a muscle or something.Q: Did the doctor examine you?--- A: Yes, but he suggested an X-ray. Q: Did you follow that suggestion?--- A: Yes, I did. Q: And did you have an X-ray that day?--- A: Yes, I did. Q: Did the doctor prescribe any treatment for you, apart from the X-
ray?---A: He prescribed physiotherapy if needed. Q: Did he prescribe any medication?--- A: As I recall, some Voltaren and Panadeine Forte. Q: You said you followed his advice in respect of the X-ray. Did you
have the medication?---A: No, because Panadeine Forte usually make me drowsy. Q: Did you have the Voltaren?--- A: No. Q:
After you had the X-ray, was there any discussion between you and the doctor as to what would happen on the return of the X-ray report?---
A: No. Q: Were you to see the doctor again?--- A: Yes, just for the report, yes. Q: Was an appointment made, do you recall?--- A: That's on Monday. Q: Between the Friday and the Monday, what happened with your
low back?---A: Just went away. Just nothing - nothing really - I never suffered
anything that would stay any longer than a day or two.Q: When you saw the doctor on the Monday, what do you recall of
what he told you in respect of the X-ray?---A:
I recall being there, and he just put it down to a muscular pain, a strain. Coming back from a four week holiday, starting in a bit too hard.
Q: Yes?--- A:
And - when I should've taken it a little bit easy to start off, to sort of warm up your body and get used to your job again. So I felt a hundred per cent, which is as always, and he just said, you know, that he couldn't see anything wrong whatsoever.
Q: Did you go to work that day, the Monday?--- A: As I recall, it would've been an RDO. I'm not sure. Q: Do you remember whether you went to work or not?--- A: I think most probably not. Q: Did you get a certificate from the doctor for being off work, do you
recall?---A: Sorry, I can't recall that. Q: You can't recall it?--- A: No. Q: Did you return to work after seeing the doctor on the return visit
from the X-ray?---A: On Tuesday, yes.”
25 As can be seen, the plaintiff was off work for the Friday when he went to the doctor and was X-rayed, returned on the Monday and started work again on the Tuesday. The plaintiff then said that from the Tuesday onwards, his back was “indestructible. Very good”.[11]
[11] T 60
26 The plaintiff gave evidence (already outlined in para 15 of these reasons) of the circumstances in which the application for the disputed units was made and said that, in relation to specific questions on the health statement, he had answered “no” because he had never suffered from the conditions inquired of in question 4(e) and, in relation to 4(f), “because there was nothing wrong with me”.[12]
[12] T 69
27 Cross-examined as to the nature of his work and its affect on him physically, the plaintiff allowed that he had often had a sore shoulder or a sore neck or a sore back at the end of a heavy day’s work and that he had sore muscles, saying that at the factory was a smelly substance like “Tiger Balm” used by the workers for rubbing on sore shoulders and the like.
28 The plaintiff agreed he must have had a lot of pain to go to the doctors. He said he didn’t take either of the medications prescribed - Panadeine Forte because he knew it made him drowsy (and he need to “be clear” to drive his truck) and Voltaren because he was “not a pill man” and doesn’t believe in taking pills.[13]
[13] T 79
29 Challenged as to his evidence that he “woke up” with the pain on 11 February 2005, he said he couldn’t (now at least) recall what he’d done at work the day before – and that it would be normal to wake up with back pain and “warm it up” before going to work. He could not recall what he’d told the doctor. He agreed he’d had the pain the right thigh, but said the pain then was “nothing like what I experienced recently” – though not explored, I took this to be a reference to his pain since April 2006. He would not allow that he told Dr de la Porte of back pain and consultation for it the year before.
30 Cross-examined in relation to the earlier November and December 2004 visits to the Millennium Medical Centre, the plaintiff acknowledged that he had seen Dr Kumar for “smoking, a little bit of stress”. Expanding on the stress, his evidence was:
“Q: Tell us about the stress that you had?--- A:
I was trying to quit smoking as well. So - and I'm always a stress head because I'm a perfectionist at my job especially. And it's not easy to quit smoking and deal with a lot of tough blokes at the same time during the day.
Q: How did the stress affect you?--- A:
Start smoking again, so it went away. I was - I was always in between my boss and the managers on site, where they always wanted extra work, extra fencing to be done. Where I - personally I couldn't, because it was not on my job sheet. And something that's not on the job sheet - you get questioned - you can get in troubled with at the factory. So you've got one manager saying, ‘I want you to finish, you finish’, and then the boss tells you - just telling something real awkward, so - so I can't really tell him what the boss said. So yeah, you just stress.
Q: You're stressing, you're worrying?--- A: Yeah, you actually do worry, yes, yes. Q: Are you having like panic attacks at all?--- A:
Yeah, yeah, because I'm always nice to people, I don't - I don't go swearing, especially to foremen - they can get me kicked out of the industry for, you know, being rude to them. So I don't - I don't believe in being - - -
Q: But inside - you're panicking inside?--- A: Inside, yeah - you had times where you want to explode, yes. Q: Because you've got people pulling you in different directions?--- A:
Yes. Look, a fencer - especially doing a shopping centre, you - you're always working on a deadline and you're talking traffic management and you're talking panels - yes, it can get quite - quite stressful.
Q: You're panicking inside thinking, ‘How am I going to get all this
done?’?---A:
Yes, yes, because I was always known for my - I was very quick at what I did. I always finished my jobs way before time, and that's why I sort of - that was one of my highs.
Q: I think you said you prided yourself as one of the fastest fencers?--- A: Yeah, I was - I was told that by a couple of building companies, yes. Q: People knew that, and that's why they got you, and that's why you
went back to this company for the big money?---A: Yes. Q: So you were under a lot of pressure - - -?--- A: Yes.- - - Q: and people wanted you to work harder and harder?
---
A: Yes. Q: And you were keeping that bottled up inside because - - -?--- A: I always do. Q: You don't want to be rude to people?--- A: That's it. Q: And it got to a point where it was too much for you?--- A:
Yes, yes. Especially when you start taking it out on - when you go home and you can't talk to your wife. So - because you're just - you just need that space. So - yeah. So - plus you try to quit smoking because it does get a bit expensive, and that's very hard. Yeah, it's - especially when you're outside and just you and the truck and a paddock all day long. So there's not much to entertain yourself with.
Q: The stress got too much for you, and you thought, ‘I'll need to go
and see the doctor to help me deal with it’?---Yes.A: I was hoping to get some magic pill to stop smoking for starters. Q: But you also wanted to talk to him about how you would cope with
the stress?---A:
OK, I need to - yeah, I don't - I don't talk to many people, especially about my problems and stuff. So yeah, just - I always worry about, you know, training new workers and - and you've got a responsibility whether you want to keep a worker on or sack him, because ultimately you're the one that's going to work with him. So the employer just – ‘OK, we've got David here, you know, if he's good we keep him, if not’ - so we're always understaffed, way understaffed. We had three trucks running and a ute, and there was only four of us.
Q: So it's very busy. Did your wife tell you that you should go and get
help for the stress? Or was that a decision you made?---A:
It's a decision I made. I've been trying to quit smoking for a long time, but being a stress head that I am, I - I'd rather smoke. I'm not an - I don't - I'm not much for alcohol, so I do smoke a lot.”
31 Cross-examined about the second visit, he described a lump that came up on the back of his head which was tender so he went to the hospital and that he understood the lump came on due to stress. His appreciation of the cause of the lump seems at odds with the doctor’s entry[14] where the diagnosis in December 2004 was of lymphatic node enlargement for which Augmentin (an antibiotic) was prescribed. On further questioning, it emerged that the lump he had been describing as being part of his neck was in fact located in the occipital region of his skull, and he pointed to it in the course of his evidence, agreeing that he had mentioned this problem when he saw Dr de la Porte the following year.
[14] CB 229
32 The clinical records of the Millenium Medical Centre, where the treatment was sought, were tendered.[15] They provide the only contemporaneous record of the plaintiff’s complaints at the relevant times. As to his complaints in late 2004, they are recorded in the following terms:
[15] CB 228
“Friday November 19 2004 17:13:43
Dr. Vinod Kumar
General:
Smoking assessment changed: 19/11/2004
Smoker: Smoker
Smokes per day: 20
Started: 10Comments: counselled about quitting
Alcohol assessment changed: 19/11/2004
Days a week patient usually drinks alcohol: 1-2 Days a week
History:
highly stressed/tender neck muscle/anxiety
Examination:
Musculo-Skeletal:
Left, neck: red, swollen, tender/no sign of bony injury.Prolong. counselling done for stress mechanism/how to deal with difficult work situation.
Actions:
Letter written – re. Certificate to work.plan dly physio/deep heat/rest. comp failure.
Tuesday December 7 2004 19:27:27
Dr. Paul Bartusek
left occipital area tender elastic resistence (sic), oval 1 cm diameter,
smooth surfance (sic), free movement, non adherentno sign of cellulitis
Dg: lymphatic node enlargement
Actions:
Medication/Product Added: AUGMENTIN DUO FORTE TABLET 875
mg/125mg 1 tbl b.d. c.c.
Prescriptions printed:AUGMENTIN DUO FORTE TABLET 875 mg/125mg 1 tbl b.d. c.c.
Review:
in 1/52 if not improvements
for blood test and US.”
33 No medical report concerning these consultations was put in evidence, nor were Drs Kumar and Bartusek called to give evidence.
34 Dr Corbus de la Porte gave evidence via video-link and was interposed during the plaintiff’s cross-examination. Due to technical problems he had great difficulty hearing the questions put to him, and so some of his answers were not responsive. He had no memory of Mr Virag. By reference to his notes, he said the history he had been given was as follows:
“...he told me that he injured his lower back at work the previous day. He told me that the pain was mostly on the right side of the body, and that the pain radiated down the right leg. He also told me that he had previous episodes of back pain after lifting heavy objects. He then also told me he saw Dr Kumar on 19 November in that practice for lower back pain but I couldn't trace any notes. The only notes that I had of 19 November was what Dr Kumar made there and that was for a neck problem it seems. That is what I was told.”
35 As to diagnosis he said:
“....on Friday, I couldn’t make a definite diagnosis because I couldn’t find anything wrong. I needed to investigate the problem further. I couldn’t find any clinical problem so I couldn’t make a clinical diagnosis on that day so I needed further investigation.”
36 As to his level of pain, Dr de la Porte said it could not have been acute or severe because that would preclude the normal examination findings he had made and that he referred him for X-ray with a provisional diagnosis of lower back sprain, which diagnosis he conveyed to the plaintiff and the radiologist. He prescribed Panadeine Forte for the pain and Voltaren, an anti- inflammatory. Dr de la Porte said he would have told the plaintiff he could not find a clinical reason for his pain and would probably have told him he thought it was a sprain. Dr de la Porte also said that he had mentioned his occipital pain but that there was nothing to find on examination. An X-ray was conducted on the 11 February 2005 and the plaintiff returned to see him on Monday, 14 February 2005. As to that consultation, Dr de la Porte said:
“. . . I read the report to him and I explained what was in the report. Now, likely according to my notes there was no abnormality demonstrated on the x-ray, and thus no abnormality was reported in the report, and that is what I told him there. So I told him that there was no bony abnormality demonstrated on the x-ray and that it was probably a muscle sprain or a strain.”
37 The doctor made no distinction between sprain and strain and said that he would have told the plaintiff to come back if pain persists.
38 In cross-examination, Dr de la Porte was informed that the plaintiff returned to his very heavy work until July of that year and, with that additional history, was asked to state whether the condition for which he had seen him in February of 2005 represented an insurance risk in respect of Mr Virag’s back. The doctor said:
“The question is no, there was nothing wrong with Mr Virag's back. On the day that I saw him, he was no risk for any insurer regarding his back on the day I saw him. There was nothing wrong with his back that I could find, either on clinical examination or on - on x-ray. And if I had to fill in an insurance form on that day, I would've said ‘no, he is not a risk’.”
39 Dr de la Porte explained that the note “clinically not LDP” meant clinically not lumbar disc prolapse.
40 In some respects the plaintiff’s account of these two consultations with Dr de la Porte in February 2005 was inconsistent with Dr de la Porte’s notes. On his account, he had not told him of any particular injury the day before the 11th, and, by the 14th, his back pain had cured itself, whereas the doctor’s notes record improvement but not cure. In this context, the defendants tendered Interrogatory No. 9 for the examination of the plaintiff together with its answer,[16] wherein the plaintiff swore that he did complain of continuing pain in his right lower back when he attended on Monday, 14 February 2005.
[16] Exhibit 1, CB 26 and CB 29
41 It was put to the plaintiff that he sought a certificate at the Monday consultation because his back pain was still severe. The plaintiff responded that the need for the medical certificate arose because he had taken the Friday off and because the Monday was a rostered day off and so, if he did not provide a medical certificate for the Friday, he would not be paid for it.
42 The plaintiff was cross-examined as to the ticking of boxes in the application for increased insurance cover.[17] He said he had filled it out that day on the site, that the maximum cover cost $20 a week, he could afford it and that it was taken out mainly “in case I die”. In relation to his ticking of the “no” box in answer to question 4(e), which reads: “To your knowledge have you suffered from mental or nervous disorder or chronic fatigue syndrome”, and why he had not mentioned or thought of the consultation with Dr Kumar in relation to stress in November of the year before the plaintiff said:
“That's not an indication of being a very sick individual, I'm sorry. I mean everybody suffers from stress. You give that - a construction worker - I'm sorry, but that ‘Mental and nervous disorder or chronic fatigue syndrome’ - I'm able to operate heavy equipment - forklift, digging machinery. I drove a seven tonne truck. Sorry, but a person with that problem wouldn't be able to do any of those things. I'm a second class welder, I use - I use - what do you call it - oxy torches. I use welding machines. I - if I had a problem, I wouldn't able to do any of that.
[17] CB 129A
43 And later saying:
“I didn’t even consider any insurance company. Why – why would I put that to an insurance company? I’m not crazy; I’m not taking pills for it. I definitely wasn’t on anti-depressants.
44 Put to him that he knew he had injured his back the plaintiff replied
“No, pain – muscular pain and injury are two different things, I’m sorry. I am sorry, but a person that’s injured his back is me in my situation now. Muscular pain is not an injury.”[18]
[18] T 130
The insurance evidence
45 The Group Life Policy between the defendants was tendered in evidence. Reference to the terms of the policy shows that it uses the term “proposer” to describe the Trustee (in fact the insured) and the term “insured person” to describe a member of the Fund whose disability or death triggers Hannover’s obligations to pay. Paragraph 1.2 of the policy conditions the obligation to pay upon the proposer and the insured person abiding by all the conditions which apply to them.
46 The policy provides for the provision of “corresponding” cover where “a person” had cover under the immediately preceding policy – para 2.1.
47 The policy makes cover compulsory for CBUS members who are receiving “employer contributions” and allows up to four units to be taken out without medical evidence within six months of becoming “First Eligible” – para 3.1.1. It defines “eligibility” to be covered by reference to being in “Active Employment” or from the date of commencement of Active Employment – para 3.2.4.
48 By paragraph 4.3, the policy provides for increases in Agreed Benefit by application, subject to the completion of the “Application to Increase Insurance Cover Form” by the insured person and upon acceptance by the Fund (upon terms agreed between the Fund and Hannover) or, if referred to it, by Hannover itself. The increased cover commences from the day of acceptance.
49 By paragraph 8.3, the policy is said to be made up of the policy document and schedules and, by 8.3.4, any statement relevant to their cover made by an Insured Person.
50 By its glossary, the policy defines an “Application to Increase Insurance Cover Form” as a form to be agreed between the Fund and Hannover and to include “health evidence”. The glossary also defines a “Personal Statement and Declaration of Health” as a form to be agreed between the Fund and Hannover.
51 In this case, the application the plaintiff completed was in a form headed “CBUS Application to Increase Insurance Cover for workers involved in MANUAL OCCUPATIONS”.[19] The document informs the applicant, inter alia, that:
“The insurer will only accept an application if…
2. You are attending work and engaged in your normal work duties
without restriction due to sickness or injury…”
[19] CB 129B, CB 129C
52 The document also informs the potential applicant of his duty of disclosure in these terms:
“Before you enter into a contract of life insurance with an insurer, you have a duty, under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or could be reasonably expected to know, that is relevant to the Insurer’s decision whether to accept the risk of insurance and if so, on what terms. You have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of life insurance.”
53 Ms Alice Hadjialexiou gave evidence. She was, at the relevant time, employed by “Super Partners” who were the administrators of the CBUS Superannuation Fund. Her duties as an insurance officer employed by Super Partners was to process application forms, answer queries and handle anything to do with insurance matters relating to members of the Fund. She identified the administration kit which set out the guidelines CBUS was to apply in relation to applications for insurance by its members, saying, broadly, that if a member has indicated a medical issue their application would be referred to the insurer for further investigation. She said that she had processed Mr Virag’s application for the seven units and had accepted the application because he fell within the height and weight guidelines set by the insurer and had ticked “no” to all the medical questions. She said that if any question had been answered “yes”, then, if it had not already been provided, further information would be sought for the member. Once the further information was available, the application would always be referred to the insurer for further assessment.
54 When cross-examined, she said she was aware of the conditions for increasing the level of insurance cover on the application form and that in some cases, but not all, she was aware of the outcome of the application after it had been referred on to the insurer. The usual practice being the receipt of an underwriting report saying whether they had been accepted or declined or accepted for death only.
55 When re-examined, she said that usually, the insurer either accepted or declined where a “yes” box had been ticked, or offered death cover only, but that on one or two occasions they deferred the decision, in which case they might re-evaluate the case “within a year or so”.
56 Mr Roelof Roozendaal gave evidence. Mr Roozendaal is manager of risk in the underwriting department of Hannover. He has worked in life insurance for close to thirty years as an underwriter. More specifically, between 2002 and 2006, he was the chief underwriter at Hannover and was responsible for underwriting the CBUS Group in respect of death and TPD cover. He said that CBUS was authorised to accept applications so long as all the answers on the health statement were answered “no” except for the smoking question. He said that where questions were answered “yes”, and information was given that related to the positive answer, the underwriting options were to either accept or decline the application in its entirety. Early in his evidence-in-chief, he said that, as far as he was aware, death cover alone could not be offered in those circumstances.
57 Shown the Millennium Medical Centre medical record, Mr Roozendaal said, based on those reports, Hannover would have declined the TPD and (contrary to what he had earlier said), said death cover only would have been offered.[20] He said the reason for declining TPD cover was the episode and history of back problems and the episode of stress and anxiety, saying that death cover would have been offered despite those conditions. He said that in some cases, where there was uncertainty as to the materiality of the risk disclosed, he would defer to the chief medical officer. He said there were written underwriting guidelines in respect of the CBUS Scheme. Mr Roozendaal agreed that the question 4(f) in the personal health statement was an enquiry as to whether a disease or injury to the neck or back was subsisting in some way at the time of the application and, further, agreed that the question could be sensibly read as enquiring as to whether the applicant had ever suffered any disease or injury of the back that in any way is relevant to the current state of the neck or back.[21]
[20] T 210
[21] T 215 – T 216
58 When cross-examined as to the difference between back pain and back injury, he conceded the possibility that the plaintiff’s history disclosed by the evidence does not “give rise to any suggestion that this is an injury . . . other than just back pain”.[22] He also conceded that if the facts were that the plaintiff was having difficulty stopping smoking because of stress at work and consulted a doctor, in that context that such a consultation would not suggest the existence of a mental or nervous disorder.
[22] T 218
59 When re-examined, Mr Roozendaal said that the references to “happened before” and to “leg pain” in the clinical notes would raise underwriting concerns, because it may be a recurrence, and there may also be sciatica, and so a little bit more than just muscular involvement. Mr Roozendaal further explained that had the plaintiff answered “yes” to the back question, then the underwriter could have sought a medical report concerning the disclosed back condition and could have delivered, and would have probably done this initially, a detailed “back questionnaire” which asked detailed questions about the applicant’s experience of back pain, saying that the personal health statement prepared for the CBUS scheme was not nearly as detailed as Hannover’s standard “back questionnaire”.
60 Mr Roozendaal was not asked whether, had he known the full facts concerning the plaintiff’s medical condition,[23] and all of that material had been made available to the underwriter through the available processes that he identified, namely the delivery of a detailed back questionnaire and the gathering of medical reports, whether, with all that information, Hannover would have rejected the application for TPD cover.
[23] By that I mean his recovery without any treatment, his ability to work in his extremely arduous employment for long hours without further consultation or treatment, and Dr de la Porte’s view that he had nothing wrong with his back and was no insurance risk.
61 Mr John Leonard gave evidence. He had been an underwriter for more than thirty years and had been the chief underwriter at a number of large life insurance companies and had experience over many years underwriting policies of the type here under consideration, as well as income protection policies and other forms of life insurance. He said that his training had been “on the job” and his expertise in underwriting was gathered from years of contact with other experienced underwriters at the companies he had worked in and the reinsurers they dealt with. He said also that, for a considerable period of time, he regularly consulted with one of his employer’s chief medical officers, a specialist physician in Collins Street, to seek guidance in relation to disclosed matters.
62 He gave evidence that in his opinion on the facts as he knew them, any underwriter would have offered TPD cover subject to an exclusion relating to any back condition. He explained that this was so because of a combination of factors, principal among them, the “recency” of the back complaint and the arduous nature of the plaintiff’s work. He said the same would apply in relation to the stress condition, that is, any cover offered would be subject to an exclusion for stress. In all the circumstances, and having regard to the inability under the CBUS scheme to offer TPD cover with exclusions, Mr Leonard said that in his opinion cover would not be offered at all in respect of total and permanent disablement. Explaining “recency”, he said the position might be different if the application was separated from the symptoms by twelve months which were symptom-free.
63 In cross-examination, Mr Leonard said that all the positions he had held as an underwriter had access to a chief medical officer and that when concerns about medical matters arose he would go to the chief medical officer of the organisation for assistance in forming a view as to whether the concerns were material or not to the risk. He said that he had experience in designing personal health statements, saying that the depth of the questioning generally depended on the pricing of the contract. He would not concede that the experience of back pain alone was irrelevant to the underwriting question, maintaining that in the circumstances of this case, disability cover would not be offered.
64 When questioned as to the answers expected by the form of questions appearing on the personal health statement Mr Virag had completed, Mr Leonard said that he would have expected this back condition to be disclosed. He was less firm in his opinion about the stress complaints.
65 When explaining how the questionnaires are prepared, he said the level of detail is related to the price per unit the underwriter quotes the super scheme when the policy is written, and, that in group policies of this sort, the questionnaires are very much less detailed than those required of individuals seeking personal cover. He said the risk of physical disability for any particular group scheme is factored into the price per unit of the cover offered. He said that he believed actuarial calculations of the risk of physical disability from musculoskeletal injury for construction workers probably exist and would be obtained for the purposes of preparing a quote for a construction industry superannuation scheme group policy.
66 Mr McCredie objected to the receipt of opinion evidence from Mr Leonard and Mr Roozendaal, insofar as their opinions went to the question of whether the non-disclosed matters were material to the risk, saying that they had insufficient expertise to make what should properly be a medical assessment as to whether the non-disclosed symptoms and consultations were in fact material to the risk being taken by the underwriter.
The applicable law
67 Central to the resolution of the dispute between the parties is the identification of the law governing their relationship. The plaintiff says the relationship is governed by the provisions of the Insurance Contracts Act 1984 (Cwlth) (“the ICA”). The defendant says that, in respect of the seven units, the ICA has no operation and so the common law operates.
68 For reasons which follow, I have concluded that the provisions of the ICA are applicable here.
The statutory scheme
69 The background history and purpose of the provisions of the ICA that concern non-disclosure and misrepresentation is referred to in Permanent Trustee v FAI General Insurance[24] at paragraphs 23 -25.
[24] [2003] HCA 25, 214 CLR 514
70 It was common ground that the policy between the defendants was a “life policy” within the meaning of the Life Insurance Act 1995 (Cwlth) and that it was a “blanket superannuation contract” within the meaning of s.11(4) of the ICA, being for the purposes of a superannuation or retirement scheme and not an individual superannuation contract.
71 By s.4(2) the operation of ss.32, 54 and 56 of the ICA is extended to blanket superannuation contracts made before the commencement of the ICA, in the case of a person who becomes a member of the relevant “superannuation or retirement scheme” after the commencement of the ICA.
72 Section 7 preserves the operation of the common law unless displaced by the ICA, expressly or by necessary intendment.
73 By s.11(9), a reference in the ICA to the entering into of a contract of insurance includes the making of an agreement “by the parties” to extend or vary the contract in the case of a contract of life insurance.
74 By Part II of the ICA, a duty of utmost good faith is implied in contracts of insurance to which the ICA applies, with the limitation (s.12) that it does not expand upon the duty of disclosure (found in Division 1 of Part IV).
75 Part IV of the ICA is headed “Disclosures and misrepresentations”
76 Division 1 of Part IV is headed “The Duty of Disclosure”. The insured’s duty of disclosure is set out in s.21. It provides:
“21 The insured’s duty of disclosure (1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:
(a)
the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or
(b)
a reasonable person in the circumstances could be expected to know to be a matter so relevant.
(2) The duty of disclosure does not require the disclosure of a
matter:
(a) that diminishes the risk; (b) that is of common knowledge; (c)
that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know; or
(d)
as to which compliance with the duty of disclosure is waived by the insurer.
(3) Where a person:
(a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.”
77 Section 22 requires the insurer to inform the insured of the general nature of the duty of disclosure.
78 Part IV, Division 2, deals with misrepresentations. By s.23, it resolves any ambiguity in understanding questions asked:
“In relation to a proposed contract of insurance or the provision of insurance cover in respect of a person seeking to become a member of a superannuation or retirement scheme.”
in favour of that person’s understanding of the question, if a reasonable
person in that circumstance would have given it that meaning.79 Section 24 prevents statements made by, or “attributable to”, an insured having effect as warranties. Instead, statements made “in connection” with a contract of insurance, are treated “as though” made by insured to insurer “during negotiations for” and “before” the contract was entered into.
80 Section 25, relevantly, provides that where “a person who became ... one of the life insureds” makes a misrepresentation, the ICA has effect “as though” that misrepresentation was made by the insured.
81 Section 26, by reference to reasonably held belief (sub-s.(1)), or reasonable lack of knowledge of the matter’s relevance to the insurer’s decision as to the risk(sub-s.(2)), provides that certain statements “made by a person in connection with a proposed contract of insurance” are not to be misrepresentations and, by s.26(3), the operation of s.26 is extended to the provision of insurance cover in respect of a person who is seeking to become a member of a superannuation or retirement scheme.
82 Part IV, Division 3, deals with remedies. Section 29 specifies the remedies available for failure to disclose, fraud and misrepresentation in the case of life insurance.
83 Section 32 provides:
“32 Non-disclosure or misrepresentation by member of scheme This Division extends to the case where there was a failure to comply with the duty of disclosure, or a misrepresentation was made, to the insurer under a blanket superannuation contract in respect of a proposed member of the relevant superannuation or retirement scheme as though:
(a) the insurance cover provided by that contract in respect of that member were provided by an individual superannuation contract between the insurer as insurer and the trustee for the purposes of the scheme as the insured; and
(b) that contract had been entered into at the time when the proposed
member became a member of the scheme.”
84 By s.32, the operation of Division 3 of Part IV is extended, where there was a relevant failure to disclose, or misrepresentation made, to the insurer under a blanket superannuation contract in respect of “a proposed member” by the use of two fictions. Firstly, “as though” (s.32(a) contrary to the fact) the insurance cover provided by the blanket policy in respect of that member was provided by an individual contract in respect of that member between the insurer and the Trustee and, secondly, “as though” the individual contract had been entered into at the time the proposed member had become a member of the scheme (s.32(b)). The provisions of s.32 seem designed to serve two purposes.[25] First, by creating a fictional single contract in respect of the “non disclosing” or “misrepresenting” life insured, it makes remedies available in respect of that particular cover. Secondly, by giving the individual contract so created a fictional commencement time, it places the non disclosure before, rather than after, the contract of insurance was entered into and so overcomes the problem that the non disclosure/misrepresentation will usually occur after the blanket policy is in place, in this regard mirroring the provisions of ss.24 and 25.
[25] The Explanatory Memorandum to the Insurance Contracts Bill 1983-4 paras 99-102
85 By s.33, the provisions of Part IV Division 3 displace the common law in respect of non-disclosure, misrepresentation and incorrect statements.
86 “Superannuation or retirement scheme” is not defined in the ICA.
Submissions as to whether the ICA operates
87 Both parties provided written outlines of argument. Neither party was able to refer me to any authority (or any case at all) in which the issue had even been raised, much less decided. It was in relation to the construction and application of s.32 that most attention was directed during the course of submissions on this issue.
88 It was common ground that the policy between the defendants was a “contract of life insurance” for the purposes of the ICA and that the policy is a “blanket superannuation contract” within the meaning of s.11(4) of the ICA.
The defendants’ submissions concerning the application of the ICA
89 In support of its submission that the ICA did not apply here, the defendant made the following submissions.
90 It was submitted that:
“The ICA does not govern the relationship between the plaintiff and the defendants, the plaintiff not being a party to the insurance contract, which is between [trustee] and Insurer.”[26]
[26] Para 15 defendants outline of submissions
91 Next that the ICA only applies by reason of a deeming provision (s.32) and the words of that deeming provision cannot be strained to allow the ICA to apply in the circumstances of this case – where an existing member applies for an increase in insurance cover.
92 Next, that s.32 (and here the oral submission was in this respect contrary to the pleading[27] and the written outline):
[27] By para 34 the defendants alleged that the deemed contract was between defendants
“. . . properly construed what this section does is to deem there to be a contract of life insurance between a member of a superannuation scheme and the insurer under the superannuation scheme . . .”
that is:
“To come into existence between a proposing member of a superannuation scheme and the life insurer at the time that the proposed member becomes a member of the scheme.”[28]
And that:
“. . . absent this section (s.32) where you have a superannuation scheme with more than one member, the members are not party to the insurance contract. The disclosure provisions and the avoidance provisions in the Act in their terms only apply to insurers and insureds.”[29]
[28] T 261-262
[29] T 262
It followed, that the ICA does not govern the relationship between the plaintiff and Hannover because the plaintiff is not a party and because s.32 does not help, in that s.32 applies only to proposed members, and the plaintiff is not one of those having joined the superannuation scheme long before. In the defendants’ submission, s.32 applies only to applicants for insurance cover when they join a superannuation scheme for the first time, and not otherwise. The result being that the members’ duty of disclosure was to be found under the common law.
93 The defendants sought support for its submission by reference to a 2007 draft bill which was said to be designed to fix this anomaly – although the explanatory materials to which I was referred[30] suggested that the effect of the section in its unamended state, was to leave the insurer without a remedy, and so the anomaly operated to the detriment of insurers. Nevertheless, it was submitted that the draft bill supported a conclusion that the ICA did not apply, and so the common law did.
[30] Insurance Contracts Amendment Bill 2007 Exposure Draft, December 2006
94 The defendants submitted that three outcomes could be considered. Firstly, it was submitted (and this was the defendants’ primary submission) that the ICA does not apply but the common law does.
95 Secondly, that the ICA applies. If it does, the section operates to deem the date of the contract (for the seven units) to be when the plaintiff first joined the scheme in February 1999, with the result that the three years during which the ICA allows avoidance for non-disclosure had expired in 2002, so that there is no remedy now available to the insurer for non-disclosure.
96 Thirdly, that the ICA does not apply to the seven units of cover, but nevertheless the ICA has displaced the common law, leaving the insurer with no remedy at all.
97 Developing its submission in relation to the common law, it was submitted by the defendants, and conceded by the plaintiff, that Hannover Life Re of Australasia Ltd v Sayseng[31] is authority for the proposition that, at the time he took out the seven units, the plaintiff owed Hannover a duty of good faith and a duty to make proper disclosure. (This duty being different from that imposed by the ICA – where the duty of upmost good faith in relation to disclosure is tempered by s.21.)
[31] [2005] NSWCA 214
98 As to the content of the common law duty of disclosure, it was submitted by Mr Christie and, at least partly conceded by Mr McCredie, that two steps arose for consideration. Firstly, whether a prudent insurer would have considered the non-disclosed matter material to the acceptance of the risk and, if so, whether the actual insurer was induced by the non-disclosure to accept the risk.
The plaintiff’s submission concerning the application of the ICA
99 On the plaintiff’s behalf, Mr McCredie submitted that the ICA applied, saying that s.32(a) deems an individual superannuation contract to come into existence between the insurer and the trustee in respect of that member and that cover, so that the proposal by the member is in respect of that deemed contract.
100 Next, Mr McCredie submitted that the defendants’ contention, that s.32 only has operation when a person first joins the superannuation fund and not when later applying for or extending insurance cover, depends on construing the words “proposed member” to be a person “proposing to join the scheme”, as opposed to a member “proposing to take out insurance”. Mr McCredie submitted that it was not necessary to construe “proposed member” in a way that confined the operation of the section to the moment when a person first joined the superannuation scheme. In Mr McCredie’s submission, and he drew support for this from the heading of s.32, “proposed member” meant a member who had made a proposal for insurance cover which misrepresented or failed to disclose. In support of this submission he pointed to s.32(b), saying that s.32(b) was altogether unnecessary if s.32(a) could only apply when the member is joining the superannuation fund for the first time. Developing this argument, Mr McCredie submitted that, in respect of the seven units, the plaintiff was a “proposed member” and did not become a member “in respect of those units” until his application was accepted on 28 June 2005. So, by giving “proposed member” a meaning which includes an existing member “proposing” to take out extra units of cover, the section would operate in a way that the insurer would then have, and have only, the remedies for which the ICA provides.
101 It was submitted that s.33 provides the only, or exclusive, rights an insurer might have in respect of misrepresentation or non-disclosure and that if the ICA does not give a remedy, the common law cannot do so. In this regard, the plaintiff relied upon Advance (NSW) Insurance Agencies Pty Ltd v Matthews.[32]
[32] (1989) 166 CLR 606
102 In the alternative, Mr McCredie submitted that s.32 does apply here, and operates to deem the contract for the seven units to have been entered into on 15 February 1999 (the date the plaintiff joined the fund rather than June 2005 when the application for the seven units was accepted), and because the three years after that time in which avoidance of the contract on the ground of misrepresentation or non-disclosure (s.29(3)) could have been made expired on 15 February 2002, the insurer has no remedy now and necessarily had no remedy from the moment cover was accepted.
103 Alternatively, it was submitted that because the ICA and s.33 displaces the common law completely, and if, in respect of the seven units, the plaintiff is not a proposed member to whom s.32 applies (being already a member), the insurer has neither the statutory nor common law remedies for the non- disclosures and misrepresentations of which it complains here.
104 Mr McCredie submitted that if, as the defendants had submitted, s.32 has an anomaly in it (Mr Christie called it a “quirk”), so that it does not apply to increases in cover, such as we are here concerned with, then s.33 operates to exclude the common law in any event because the insured of which s.33 speaks is the trustee as the “insured” in respect of the individual member’s cover.
Conclusion as to the applicable law
105 The ICA, as was conceded in argument, is remedial “consumer protection” legislation.[33] It follows that a purposive approach to the question of construction raised here is required.[34] It is legitimate to have regard to the consequences of an interpretation in the evaluation of alternative statutory constructions.[35]
[33] T 264
[34] East End Real Estate v CE Heath Casualty and General Insurance (1991) 25 NSWLR 400; Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 at 675; NM Superannuation v Young (1993) 43 FCR 182
[35] Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 297 at 320- 321.
106 In deciding questions as to the construction of provisions of Part IV of the ICA, the High Court has referred to the history of the legislation, to its long title and in particular to the ALRC Report No 20 1982, the Explanatory Memorandum to the Insurance Contracts Bill and to the second reading speech, Hansard 29 May 1984.[36]
[36] Permanent Trustee Aust v FAI General [2003] HCA 25 at para 23 and following; CGU Insurance Ltd v Porthouse [2008] HCA 30; Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR
107 In Matthews, in the often quoted passage, the High Court said of Part IV:
“The evident intention of the legislature is to replace the antecedent common law regulating non-disclosure, misrepresentations and incorrect statements by insured persons before entry into a contract with the provisions of Pt IV. To that extent Pt IV is a statutory code which replaces the common law. Accordingly, the circumstances in which it is legitimate to resort to the antecedent common law for the purposes of interpreting the statute are extremely limited.”[37]
[37] (1989) 166 CLR 606, at 615
108 In this case, the construction for which the defendants contend has the result that all working people, who are members of retirement or superannuation schemes, who later take out, or extend, the insurance cover for which the scheme allows, are not subject to the intended protection of the ICA but rather have their disclosure obligations governed by the antecedent common law. No such problem exists for those who take out all of their cover upon joining, where the obligations to disclose and the remedies for failure would be those, and only those, found in the ICA.
109 It was no part of the defendants’ submission that this result was intended. Indeed, no rational basis for bringing within the protection of the ICA the members who take out all of their insurance cover upon joining the superannuation scheme, whilst leaving to the harsher common law tests those members who later take out cover, or, as here, additional cover, was or could be suggested. The absurdity of this outcome hardly needs pointing out. Accordingly, the defendants had to make the submission that the result contended for was a consequence of an oversight or of the draftsman’s slip.
110 In my view, it is clear beyond argument that parliament intended to “cover the field” – that is for the ICA to govern all the insurance cover provided to scheme members. The legislative intention to achieve this result is expressed by, firstly, the inclusion of variations in the definition of contract of insurance. Secondly, the inclusion of blanket superannuation policies. Thirdly, the specific references to members of retirement and superannuation schemes. Fourthly, the creation of a fictional individual contract in respect of each scheme member’s cover between Trustee and insurer. Fifthly, the attribution of representations made by the member to the insurer, to the Trustee. Sixthly, the nomination of a contract date bearing no relation to the actual date of the policy between the Trustee and the insurer. Seventhly, in some cases, creating a contract date that pre-dates the actual blanket superannuation contract. To my mind, all those matters point to an intention to bring within the protection of the ICA the position of individual scheme members and to include, for the purposes of the ICA, a variation or extension by an existing member of a retirement or superannuation scheme under a blanket policy.
111 The defendants’ principal submission seems to me to be flawed in a number of respects. It is true that the plaintiff is not a party to the contract, but it was common ground that he had standing to enforce the contract, being its direct beneficiary, and so the real question is whether the ICA applies to the variation of the contract between defendants made when the seven units of cover were accepted.
112 The defendants’ submission misconstrues the effect of s.32(a). Section 32(a) does not create a fictional contract between the plaintiff and Hannover at all. Rather, it creates an individual contract between Hannover and the trustee in respect of the plaintiff’s cover. Secondly, it is simply not right to say[38] that the disclosure and avoidance provisions of the ICA in their terms apply only to insureds and insurers. This submission ignores the provisions of Divisions 1 and 2 of Part IV of the ICA by which the legislature goes to considerable lengths to bring within the ambit of the ICA, misrepresentations and non disclosures made by persons who are the subject matter of, but not parties to, life insurance contracts. Those provisions apply in respect of individual life insurance policies and, specifically, in respect of blanket policies where there may be many lives insured. Accordingly, I am unable to accept the submission that the ICA (absent s.32) has no application in the case of blanket superannuation policies.
[38] T 262
113 Another difficulty with defendants’ argument is that it requires the whole of Part IV of the ICA to be read as subject to, and limited by, the availability of the remedies provided in Division 3 of Part IV. It says nothing about whether the substantive provisions found in Divisions 1 and 2 nevertheless apply. In my view they do, and this seems made plain by the reference in the opening words of s.32 to “the duty of disclosure”, which must be a reference to the duty prescribed elsewhere (other than in s 32) in the ICA.
114 I have reached the conclusion that the “proposed member” of which s.32 speaks should, as Mr McCredie submitted, be read as meaning a member proposing himself for insurance cover under the scheme. This interpretation is consistent with the context and the legislative intent. In my view, s.32 operates in this way: It operates when there was a relevant failure to disclose (or misrepresentation, within the meaning of the ICA) in respect of a scheme member’s insurance cover. It uses fictions to expose that member’s individual insurance cover to the remedies found in Division 3. It does so by isolating “the cover” in respect of which the non disclosure was made by treating “the cover” as if provided by an individual superannuation contract between insurer and trustee. Next, it places the making of that fictional contract at the only place in time where the failure to disclose can be of relevance for the purpose of remedy[39] – that is, when the member’s proposal for the particular insurance cover is being made and he becomes a member of the scheme for “that cover”. In this way, the section puts the insurer and member in the same positions (regarding non disclosure and misrepresentation) in respect of that cover as they would occupy under the ICA had the non-disclosure or misrepresentation been made in respect of an individual contract of life insurance which provided that cover.
[39] Section 29(1)(a) and (b)
115 In my view, the other three constructions canvassed in the course of submissions produce results which are unfair to one or other of the parties, simply absurd or contrary to the intention of the ICA. I therefore find that the remedies available to the defendants are those found in the ICA and not otherwise.
116 For completeness I should mention another basis upon which Mr McCredie submitted that the ICA was the applicable law. Mr McCredie relied upon the content of the application form and its reference to the duty of disclosure as being the duty owed under the ICA.[40] Mr McCredie submitted that the defendants could not say to the plaintiff, for the purpose of inviting him to apply for cover, that he had the less onerous duty of disclosure prescribed by the ICA; and, later, when he made his claim, say he had a higher duty than that, that is, the common low duty of disclosure. As I understood it, Mr McCredie submitted that this gave rise to an estoppel by representation.
[40] Set out in para 52 of these reasons
117 Mr McCredie submitted that if the common law applied here, the insurer was nevertheless at liberty in inviting proposals to determine for itself the level of disclosure it required, or even to waive it altogether. Here, the application and health statement forms part of the policy (para 8.3.4), the policy provides that the trustee and insurer were to agree upon its form, and so the parties are to be taken to have agreed on the standard of disclosure required. Having selected the level of disclosure as being that required by the ICA for the purposes of inviting the plaintiff’s application, it could not now be heard to say that a higher level of disclosure was required - because the contract was already formed and formed on the basis that the insurer offering the insurance required and required only the level of disclosure that the ICA prescribes. Further, Mr McCredie submitted that the plaintiff should be taken to have relied upon that representation by the insurer and, having relied upon it, it would be unconscionable to allow the defendant to rely now upon a higher standard.
118 In reply, Mr Christie submitted that the plaintiff had disavowed reliance on any form of misrepresentation in the course of an argument about the admissibility of the plaintiff’s evidence concerning the circumstances of the site meeting at Bunnings. In fact, reference to the transcript shows that the disavowal related to any reliance, as a misrepresentation, upon what the CBUS representative had said at that particular meeting, it did not go further than that. Secondly, Mr Christie submitted that because the misrepresentation point was raised for the first time by the late service of the amended reply[41], it was too late to raise it in submissions at the end of the case. I note, however, that he did not object to the amendment when it was filed.[42]
[41] CB 29S
[42] T 130
119 Next, it was submitted that there was no evidence, one way or the other, that the plaintiff had assumed he had a lower standard of disclosure and so there was no evidence that the plaintiff had relied upon the representation in respect of which the estoppel was said to arise. Each party was invited to make written submissions concerning the representation point, but none were received.
120 If I am wrong in the conclusion I have reached concerning the construction of the ICA, I should say that I am much attracted to the proposition that the insurer has either by representation, or by incorporation into the policy itself, set or adopted the ICA standards for the purposes of the cover it offered. However, as the matter was not fully argued, I hesitate to express a concluded view.
The issue as to the plaintiff’s knowledge
121 By its Further Amended Defence dated 24 July 2008[43], the defendants alleged by paragraph 27 that from November 2004 the plaintiff knew that he had recurrent symptoms involving his neck and back; that he knew he was highly stressed and anxious and was undergoing counselling; and that he knew he had injured his neck at work on or about 19 November 2004 and his back on 10 February 2005. By sub-paragraphs (e) and (f), the defendant pointed to entries in the clinical notes of 19 November 2004, 11 and 14 February 2005 as showing the state of the plaintiff’s knowledge.[44] Further, by paragraph 28 the defendant alleged that the plaintiff knew those matters were relevant to Hannover’s decision to accept the risk and, by paragraph 29, that a reasonable person in the circumstances “could be expected to know” that the matters were relevant to Hannover’s decision. Further, relying upon the plaintiff’s knowledge as pleaded, the defendants alleged that the answers given on the proposal form amounted to misrepresentations within the meaning of the ICA and, or alternatively, at common law.
[43] CB 29M
[44] In the end, no reliance was placed upon the neck complaints or upon the lump, other than to point to the fact that the plaintiff believed the lump was related to stress.
122 The defendants accepted that they bore the onus of proving the existence of the matters upon which they sought to avoid the policy. As to knowledge of relevance to the insurer’s decision whether to accept the risk, the defendants also relied upon the subject matter of the questions on the health statement as alerting the plaintiff, or a reasonable person in his circumstances, to the fact that the matters were relevant to the insurer.
123 As to what constitutes knowledge for the purposes of s 21 of the ICA,
“The word “Knows” is a strong word. It means considerably more that “believes” or “suspects” or even “strongly suspects”. And the matter, to answer the description that par (a) of the sub-section states, must be a matter that is not only “relevant to the decision of the insurer whether to accept the risk, and if so, on what terms”, but also one that the insured knows to be such a matter.”[45]
[45] Permanent Trustees v FAI [2003] 214 CLR 514 at para 30, per McHugh, Kirby and Callinan JJ
124 The knowledge must be of relevance to the risk – here, relevantly, to the risk of death or of total and permanent disablement.[46]
[46] Ibid para 32
125 In order to succeed in its defence two things must be proved by the defendant insurer. First, that the plaintiff knew the non-disclosed matters were relevant, or that a reasonable person in the circumstances of the plaintiff would have known those matters were relevant – to the insurer’s decision to accept the risk. Secondly, that if the insurer had known of the matters undisclosed, it would not have written a policy of life insurance on any terms, s 29(3).
Defendants’ submissions as to the plaintiff’s knowledge
126 In his careful and detailed submissions, Mr Christie submitted that I should find that the plaintiff was less than frank in giving his evidence and that the evidence disclosed that the plaintiff knew he had suffered from “panic attacks” because of his agreement to a question in which that term was introduced. It followed that the law (applicable) required disclosure of those attendances and the reasons for them, as I should find on the evidence that the plaintiff knew these matters were relevant to the insurer’s decision, not least because the question on the application directed his mind to, at least, matters of exactly this sort.
127 The plaintiff’s evidence as to the “back” consultations in February 2005 was also attacked on the basis of two principal inconsistencies between his evidence and the contemporaneous notes. First, the plaintiff would not allow that he had injured his back the day before, saying he awoke with the pain that day. Secondly, the plaintiff said he was pain free by the Monday, whereas the notes describe lesser but still present low back pain on the right. It was submitted that the plaintiff must have known he had suffered a back injury, having told Dr de la Porte as much, and because of the treatment offered, the investigation ordered and, for him, the first time off work because of back symptoms.
128 It was submitted that even if I found the plaintiff did not have the knowledge, then, on the evidence, the conclusion that a reasonable person would have known that both the stress symptoms and the back symptoms were relevant was inescapable. Mr Christie submitted that if the ICA applies, the plaintiff should still fail. This was so because under s.21 the evidence establishes that the plaintiff knew the matters non-disclosed were relevant to the risk and that the evidence also establishes that a reasonable person in his circumstances would have known it was so relevant. It was said, and this was not in controversy, that either would do.
129 Although it seems to have been common ground that the test under the ICA for misrepresentation was, in substance, the same as for non-disclosure[47], Mr Christie submitted that, having been asked the direct question by the form, the plaintiff’s “no” answer to the “back injury” question was plainly a misrepresentation.
[47] The required knowledge being the same in s 21(1) and s 26(2)
Plaintiff’s submissions
130 Mr McCredie’s submissions dealt with the question of knowledge on the footing that regardless of whether the common law or the ICA applied, there had been no non disclosure or misrepresentation and so his submissions as to knowledge and materiality were intertwined. As to whether the evidence established that a non-disclosure or misrepresentation had occurred or been made, Mr McCredie made the following submissions.
131 First, it was said that, putting the defendants’ case at its highest and applying the common law, there was no difference of significance between non- disclosure and misrepresentation. It was conceded on the plaintiff’s behalf that there is no suggestion in the evidence that at the time the seven units were applied for the plaintiff had forgotten about the back symptoms earlier that year.
132 It was submitted that Mr Leonard’s evidence as to materiality went no further than “I will go to the chief medical officer; it’s a matter that I am not sure about”. By reference to authority it was submitted that in relation to the back, the question as to whether the February episode of back pain was a material fact was for me to decide on the whole of the evidence, and was not properly the subject of the purported expert evidence which had been called. It followed that Dr de la Porte’s medical opinion, that the back represented absolutely no risk for insurance purposes, put an end to the question of materiality of the non-disclosure concerning the back.
133 It was said further that Mr Leonard’s reaction was tempered by what he might later have been advised, and so was only a provisional view which did not displace the evidence of Dr de la Porte. In substance, it was the plaintiff’s submission that the defendants bear the onus of satisfying the Court on the whole of the evidence that the February back pain was in fact material to the risk and, in this case, the only medical evidence was that that episode of back pain was not material. In discussion, in the course of his submission, Mr McCredie retreated from this position to an extent, saying that there may be cases where the insurer’s evidence as to materiality matters but just because an insurer says a matter is material, does not make it so. What is also required, it was submitted, was medical evidence (or other evidence, perhaps statistical) to show that this is not just an insurer’s superstition. In support of this submission, I was referred to the following passage Mayne Nicholas Ltd v Pegler:[48]
“Accordingly, I do not think that it is generally open to examine what the insurer would in fact have done had he had the information not disclosed. The question is whether that information would have been relevant to the exercise of the insurer’s option to accept or reject the insurance proposed.
It seems to me that the test of materiality is this: a fact is material if it would have reasonably affected the mind of a prudent insurer in determining whether he will accept the insurance, and if so, at what premium and on what conditions. The word ‘reasonably’ is necessary to maintain control over the evidence of possibly absurdly stringent insurance practice … It achieves the purpose of the ‘reasonable assured’ test but fixes the area of judgment where it properly belongs – that is with the insurer. In any case, it is clear that the evidence of insurers stands in no position of special privilege.”
[48] [1974] 1 NSWLR 228, in reply Mr Christie referred to Akedian Co Ltd v Royal Insurance Australia Ltd & Ors (1997) 148 ALR 480 as showing the current approach to materiality under the common law.
134 Mr McCredie’s submission concerning Mr Leonard’s evidence, was that his evidence should be discounted because Mr Leonard drew conclusions from a set of symptoms and complaints in the absence of any medical opinion as to whether that set of symptoms and complaints represented a material risk, arguing that he had insufficient expertise to draw from the complaints (of right- sided lower back pain, leg pain, the X-ray and the time off work), without additional medical opinion, a conclusion that those complaints were material to the risk. It was submitted that Mr Leonard’s evidence needed to be explained by either medical or statistical analysis, and not being an expert in either, his opinion alone is insufficient to make the non-disclosed back symptoms “material”. It was submitted that this is especially so where the only expert opinion in the case (Dr de la Porte) was that it was not material, and there was no other evidence in the case which connects the plaintiff’s episode of back pain in February 2005 to the injury in April 2006.
135 It followed, in Mr McCredie’s submission, that on the evidence, there had been no non-disclosure, regardless of whether the common law tests or the tests found in the ICA applied. In substance it was submitted that it was correct to say that the plaintiff had not had a back injury.
136 In respect of the lump of the neck and the stress, Mr McCredie’s submission was that, whatever test might be applied, there was no non-disclosure because he did not in fact have any mental problem nor did he have any disease or injury of his neck.
137 In respect of the questions asked on the health statement, Mr McCredie submitted that the answer “no” was, when all of the plaintiff’s circumstances were taken into account, a proper or correct answer, saying that at the conclusion of his attendances on the doctor in respect of the back pain, the plaintiff believed that it was the fact that he had not sustained an injury to his back and that I could not be satisfied on the whole of the evidence that he had sustained an injury to his back. Mr McCredie pointed to the form of the question and the contrast between the “back question” and the “chest pain question” as illustrating the correctness of the plaintiff’s response, saying that if the question had been, “Have you ever suffered from back pain?”, a different response would have been called for.
138 Mr McCredie relied upon Southern Cross Assurance Company Limited v Australian Provincial Assurance Association Limited,[49] referring me to a passage at 629. It was submitted that the reasoning there applied to this case, so that the question asked did not require the plaintiff to record every episode of back pain he had ever suffered. The point being that, whatever the plaintiff might have thought had happened to his back when he first went to the doctor’s on the Friday, by the time he left on the Monday, he had been reassured that no injury had been sustained.
[49] (1935) 53 CLR 618
139 On the footing that the proper application of the ICA was to examine whether, in making the application for the seven units, the plaintiff had complied with the duty of disclosure, Mr McCredie submitted that for the purposes of s.21(1)(a), on the assumption that there was a non-disclosure in respect of the back condition, that was of no concern because, firstly, there was no evidence that the plaintiff understood the matter to be relevant to the decision of the insurer, whether to accept the risk.
140 Secondly, there was no evidence on which I could find that a reasonable person in the circumstances could be expected to know that that matter was relevant. Referring to Australian Casualty and Life Ltd v Hall[50] saying, to put it shortly, that in this plaintiff’s circumstances, importantly, the brevity of the symptoms, the reassurance from the doctor and the period of uninterrupted arduous work - that a reasonable person would not know that those events were relevant to the risk for which cover was being taken out (that is, TPD cover); saying that relevance for the purposes of s.21 is informed by the nature of the risk covered by the policy for which the proposal was completed and it was perfectly reasonable for either the plaintiff or a reasonable person in his circumstances[51], to think that four days of back pain was irrelevant to death and TPD cover.
[50] (1999) 151 FLR 360
[51] As to circumstances see CGU Insurance Limited v Porthouse [2008] 235 CLR 103 at paras 52 and 53
Findings as to knowledge
141 I found the plaintiff to be a straightforward and relatively unsophisticated witness, who gave his evidence in a manner in keeping with his limited education and a lifetime in manual occupations. His robust attitude to the symptoms he experienced from time to time is unsurprising, given the nature of his work. His memory of these events, and of the consultations upon which attention was focussed during the hearing, was not particularly good, but I draw no conclusion adverse to his credit on this account. Given what has happened to the plaintiff since, and given his unchallenged evidence that the symptoms which gave rise to those consultations lasted for very short periods of time, it would perhaps be more surprising if his memory was detailed and accurate. I formed the view that he was trying to give an honest account of these matters.
142 In regard to the consultations with the Millennium Medical Centre in November and December of 2004, I find that the plaintiff attended the medical centre seeking help with dealing with his experience of stressful situations at work (being a self-confessed worrier) and with difficulty ceasing smoking. He also suffered at that time with a red swollen lump on the back of his head which had caused him some alarm, taking him first to a nearby hospital where he was not seen[52] and then to the doctors, where he was. The diagnosis was of an enlarged lymphatic node and antibiotics were prescribed.
[52] Other than by a nurse who directed him to his general practitioner
143 These were isolated consultations. Certainly no significant treatment was received. There was no evidence that any medical advice was given. Apart from the lump, no diagnosis was given, recorded in the notes, or communicated to the plaintiff.
144 There was no medical opinion that the plaintiff was then suffering from any psychiatric condition known to medical science. No medical evidence was called to say that those symptoms and that history were in fact, or likely to be, indicative of the presence of a mental or nervous disorder.
145 On the evidence, I am not persuaded that the plaintiff in fact suffered from, or had any reason to believe he suffered from, any mental or nervous disorder. In my view, these attendances were normal responses to the difficulties and stresses his busy working life imposed upon him and their conflict with his sensible desire to give up smoking and his home life. How this man could be expected to know that these minor complaints would be of relevance to an insurer’s decision to insure him for total and permanent disablement was not explained. Seen in context, the plaintiff’s explanation of his feelings at that time, and why they did not to him seem to be of any interest to an insurer so as to require a positive disclosure, or a positive answer to the question on the health statement, seems to me to be perfectly reasonable. I am not satisfied that the plaintiff knew that his attendance regarding the lump at the back of his head where it joins the neck, or that the stress of work and his associated difficulty ceasing smoking, were matters “of interest” to the insurer. Accordingly, I am not persuaded that the plaintiff, at the time of completing the form, would have suspected, much less have known, that those matters would be relevant, or material, to the insurer’s decision to accept the risk of death or total and permanent disablement.
146 As for whether a reasonable person in the plaintiff’s circumstances would have known the subject matter of the November and December consultations were relevant to the insurer, the plaintiff’s circumstances are relevant to this task.[53] They include, first, paragraph 2 of the conditions for increasing the level of insurance cover. Secondly, the casual and public nature of the invitation to take out further cover at the site meeting. Thirdly, that no medical suggestion had been made to the plaintiff that his experience of work stress was worthy of medical treatment. Fourthly, since last seen in February for any of these problems, he had had two visits to the doctor for unrelated conditions without the need to mention stress or the neck problem at all and, importantly, he had been able to perform his arduous, stressful (at times at least) and heavy work without significant symptoms or treatment for four or five months. As for what the reasonable person might have made of the question on the application form, even Mr Roozendaal allowed that it could be read as an inquiry as to present status, and, of course, there is no evidence that he had suffered from, relevantly, a “mental or nervous disorder or Chronic Fatigue Syndrome[54]” and so the answer given was very likely an accurate one.
[53] CGU v Porthouse [2008] 235 CLR 103
[54] Question No 4(e) on the application form, CB 129A
147 On the evidence, I am not satisfied that a reasonable person in the position of the plaintiff would have known that they were matters relevant to the decision of the insurer, whether to accept the risk and, if so, on what terms.
148 As far as the attendances with back pain are concerned, I am quite satisfied that where they are inconsistent, the probability is that Dr de la Porte’s note is more likely to be an accurate record of what complaints were made. No evidence was led, nor was it explored in cross examination, as to what “the injury” the day before was, or how it happened. There was no evidence of any report of injury to the plaintiff’s employer, or at any site he might then have been working on. At one point the plaintiff speculated that “he’d had a big day at work” and “pulled a muscle or something”[55]. I think it unlikely that it was anything dramatic as Dr de la Porte, an otherwise careful note taker, made no record of how the injury occurred. The inconsistency between the plaintiff’s account and the notes might not be as great as the defendants submitted, as the note is also consistent with the plaintiff, waking with pain, naturally assuming he’d hurt it at his work the day before, and telling the doctor as much.
[55] T 58
149 As for the condition of the plaintiff’s lumbar spine and the failure to refer to the fact of the two consultations in February or the symptoms which led to them, the evidence discloses that the plaintiff’s initial concern, recorded in the notes, was that he had injured his back. This concern was, to a very large degree, dispelled by Dr de la Porte, and by his rapid and apparently complete recovery. By the time the plaintiff came to fill in the form he had had but two days off work (the second of which was an RDO), had been reassured after x- rays were taken, and had explained to himself that his back pain had occurred because he had just “gone a bit hard” after his summer holiday break. His back pain resolved without taking the medication he had been prescribed. Lastly, he had returned to his remarkably heavy and arduous work for four or five months without incident. The plaintiff’s circumstances also include the fact “aches and pains” were so common from the effort involved in that work that “Tiger Balm” or a like substance was made available at his place of work.
150 I think it more likely that the plaintiff believed that he had not suffered from a back injury for the simple reason that his doctor had not been able to find anything wrong with his back, beyond suggesting he’d probably had a sprain. The only medical evidence is that, as at the Monday, there was nothing wrong with his back – to use Dr de la Porte’s expression. His ability to work in an unrestricted way after that time would have fortified the plaintiff’s belief that no injury had been sustained. I accept the plaintiff’s evidence that he did not believe that he had suffered injury to his back at the time the form was completed.
151 On the evidence, I am not satisfied that the plaintiff knew, ( using “knows” as a “strong word”[56]) that the episode of back pain and treatment of it was relevant to the insurer’s decision to accept the risk of total and permanent disablement.
[56] Permanent Trustees v FAI [2003] 214 CLR 514
152 I find further, that a reasonable person in the plaintiff’s circumstances would not have known the matter to be relevant in the required sense. As already noted, the circumstances include: the rapid recovery without treatment, the reassurance from Dr de la Porte, the demonstrated capacity for months of extraordinarily heavy work, not mentioning it when seen for other matters later, the notation in paragraph 2 of the form, the contrast between the specificity of the “chest pain question” and the “back question” and the prevalence of aches and pains that the work usually caused. I am not satisfied that a reasonable person would have known that this transient episode of back pain was a matter relevant to the insurer’s decision to accept the risk of total and permanent disablement, or that it required a positive answer to the question. For the purposes of s.21, it is not to the point that experienced underwriters might come to a different view, and, in any event, even Mr Roozendaal agreed that the questions might be read as enquiring as to the current state of affairs.
153 As Mr McCredie submitted, unless the plaintiff’s conduct falls within s.21, the case is at an end, and s.29 has nothing to do. However, as the proper application of s.29 was argued, I should deal with the competing submissions.
154 As to s.29, Mr McCredie submitted, though this was not his main point, that s.29(1)(c) had not been satisfied because no evidence was given by any of the underwriting witnesses that, had the full facts of the case been known, the actual seven units of cover would not have been accepted. In this regard pointing to the evidence of Mr Roozendaal as showing that further information would have been gathered before a decision was made. The main argument put in relation to the operation of s.29 focussed on s.29(3). Mr McCredie submitted that the evidence clearly established that if full disclosure had been made, the plaintiff would have been offered at least death cover, so that the insurer would have been prepared to enter into “a contract of life insurance” on some terms. It followed that s.29(3) does not operate because the expression “a contract of life insurance with the insured on any terms” should not be read down to the particular aspect of the cover under dispute (here we are concerned only with the TPD cover), and that there was no reason to give the expression “life insurance” in s.29(3) a narrower meaning than it bears in other provisions of the ICA - s.11. So if, as here, the insurer was prepared to provide cover under the policy for the seven units in respect of death alone, s.29(3) gives the insurer no remedy.
155 In reply to the submission concerning “on any terms” for the purposes of s.29(3), Mr Christie submitted that for the purposes of sub-s.(3) the cover offered should be divided up into two separate policies: one for TPD cover and a separate policy for death cover, and so “on any terms” should be read as whether the insurer would have been prepared to enter into a TPD policy on any terms. Saying that conditions affecting the risk of TPD, may be wholly irrelevant to death cover, and there is no rational basis for denying an insurer the remedy on account of its preparedness to insure the proposer for a wholly unrelated risk, just because both risks fall within the statutory definition of life insurance. In support of this submission, I was referred to Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd,[57] as authority for the proposition that s.29(3) focuses on the risk insured rather than the policy. Whilst in paragraph 43 of the judgment the expression “declined the risk” is used, in that case the context was whether, on its proper construction, the hypothetical contract[58] of which s.29(3) speaks, and which must be excluded for the right of avoidance to arise, is one entered into on the date of the actual contract to be avoided.[59] It was held that it was not and that if mere indecision or delay would have followed disclosure of the true facts, then avoidance is not permitted by the section. No point was made of the content or scope of the words “a contract of life insurance on any terms”, nor was there any discussion as to whether that invoked a different concept from “the risk”. I am not persuaded that the case is authority for the proposition that the wide and non specific words used in the statute should be read down to the particular risk in respect of which the non disclosure was relevant.[60]
[57] [2003] QCA 182
[58] At para 37
[59] Para 45.
[60] Cf s.28 where the remedy is not available if the insurer would have entered “...the contract, for the same premium and on the same terms and conditions”.
156 Had there been any scope for the operation of s.29, in my view the insurer would not have been entitled to avoid the policy, for two reasons. First, that the evidence showed the insurer was prepared to further investigate a “yes” to the back question, and so may have merely delayed the acceptance of cover and, secondly, it would have offered “death only” cover in any event, and so would have been prepared to enter into a contract of life insurance on some terms.
157 For these reasons, I am not satisfied that the insurer is entitled to avoid the seven units of total and permanent disablement cover. I will hear the parties as to the form of orders, interest and costs.
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