Catherwood v Asteron Life Limited
[2022] NZHC 3296
•8 December 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-581
[2022] NZHC 3296
BETWEEN HUGH RODERICK CATHERWOOD
Plaintiff
AND
ASTERON LIFE LIMITED
Defendant
Hearing: 29 – 30 November 2022 Appearances:
G M Brodie and H D J Holderness for Plaintiff
C M Meechan KC and A Borchardt for Defendant
Judgment:
8 December 2022
JUDGMENT OF DUNNINGHAM J
This judgment was delivered by me on 8 December 2022 at 1.45 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
CATHERWOOD v ASTERON LIFE LIMITED [2022] NZHC 3296 [8 December 2022]
Introduction
[1] Thirteen years ago, Mr Catherwood took out a life insurance policy with Asteron Life Ltd (Asteron). Under the policy, Asteron agreed to pay Mr Catherwood the sum insured if he died. It would also be paid if he became terminally ill.
[2] The words “terminally ill” and “terminal illness” are defined in the policy. It says an insured is terminally ill when:
Your life expectancy is, due to sickness and regardless of any available treatment, not greater than 12 months.
[3] Mr Catherwood claims he met this definition when he was diagnosed with cancer in 2019, and he should be paid the full amount under the policy. Asteron disagrees.
[4] The issue before me is very confined. It is to decide whether “terminally ill” as defined in the policy means:
(a)as Mr Catherwood says, that his life expectancy is no more than 12 months, ignoring the effect of any available treatment; or
(b)as Asteron says, that Mr Catherwood’s life expectancy is no more than 12 months, despite the effect of any available medical treatment.
The events which gave rise to the claim
[5] Mr Catherwood is a senior lawyer in Christchurch. He has maintained a life insurance policy since 1976. In 2009, at the recommendation of his then insurance broker, Mr Richard Abbot, he terminated his life insurance policy with AMP and entered into a life insurance policy with Asteron. While he does not recall the specific reasons for the change, he assumes there was an advantage over his existing policy when looking at the cover provided and the premium payable.
[6] The policy was called a “SmartLife Policy”. It provided a death benefit which would be paid should Mr Catherwood die. At the time of taking out the policy this
was $940,07. The policy also promised to pay the death benefit if Mr Catherwood became terminally ill.
[7] The policy also offered a range of optional benefits. Mr Catherwood selected the Trauma Cover option. It provided that if he was diagnosed as having one of a range of serious medical conditions listed in the policy, or underwent major surgery, and survived at least 14 days from the date of diagnosis or surgery, he would be paid the sum insured under this option. The sum for Trauma Cover which Mr Catherwood initially agreed to was $117,508.
[8] In 2012, Asteron offered a new enhanced Trauma Recovery option and, while Mr Catherwood did not recall it, Asteron’s records show he elected to take up the new Trauma Recovery option, and he increased the amount of cover to $500,000. By this time, the death benefit had been increased to $1,200,020 as a consequence of inflation adjustments. The monthly premium for life cover at that point was $506, while the Trauma Recovery monthly premium was $795.
[9] Sadly, in July 2018 Mr Catherwood’s wife passed away after a prolonged struggle with breast cancer. Another family member was also diagnosed with a serious health issue. This prompted Mr Catherwood to check that he did not have any serious health issues looming. On the recommendation of his GP, he undertook an MRI scan for his head and a CT scan for his torso in December 2018. To Mr Catherwood’s surprise, given he had no previous symptoms, he was found to have a tumour at the top of his stomach in close proximity to the oesophagus and diaphragm.
[10] The formal diagnosis which he received in January 2019 was that it was an oesophageal adenocarcinoma. He very quickly developed symptoms and, by the end of January 2019, the tumour caused difficulties with swallowing. He came under the medical care of a general surgeon, Mr Coulter, and an oncologist, Dr Edwards. His treatment involved eight weeks of chemotherapy followed by surgery in May 2019 to remove the top part of his stomach and the lower portion of his oesophagus. That was then followed by a further eight weeks of chemotherapy once he had healed from the surgery.
The claims process
[11] Shortly after he was diagnosed in January 2019, Mr Catherwood made contact with his insurance broker, Mr Eru Manuera, about the possibility of making a claim. He made a claim under the Trauma Recovery option of the policy in January 2019, and he was paid $564,185.23 on 4 February 2019.
[12] He also discussed with Mr Manuera the possibility of making a claim in respect of the life cover. Mr Manuera’s advice was to wait until Asteron had paid out under the Trauma Recovery option before making a claim in respect of life cover if, in fact, the medical advice was that he met the criteria in the policy for the payment of life cover prior to death.
[13] Mr Catherwood says he had already been told by Mr Coulter that if he did not have treatment then he would die within 12 months, but if he had both surgery and chemotherapy, his chances of survival would improve, although at that point it was still considered he had less than a 50 per cent chance of being alive in five years.
[14] At Mr Catherwood’s request, his broker obtained the claim form for early payment of life cover from Asteron. Asteron also advised Mr Manuera that to consider an early payment of life cover under the policy, it required “supporting medical information in the form of copies of all reports, test results, specialist referrals and any other relevant information [as well as] the latest specialist letter … with information regarding prognosis”. The claim form itself sought a range of information, including contact details for the claimant’s doctor and details of all treatment being received for the condition. It also required the insured to provide an authority to release to Asteron all information with respect to “any sickness or injury, medical history, consultations, prescriptions, or treatment and copies of all hospital or medical records”.
[15] Mr Manuera forwarded the completed claim form through to Asteron on 20 February 2019. Ms Christina Brown, a claims specialist with Asteron, acknowledged receipt of the claim form but queried whether Mr Catherwood was going to provide the supporting medical notes including the latest specialist review outlining his prognosis.
[16] When this email was forwarded to Mr Catherwood, his broker suggested that Mr Catherwood direct Ms Brown to Mr Catherwood’s oncologist. On 26 February 2019, Mr Catherwood provided Ms Brown with contact details for Dr Edwards.
[17] On 28 February 2019, Ms Brown emailed Dr Edwards explaining that Asteron was currently assessing Mr Catherwood’s claim and asked him to provide the following information:
(a)What is the prognosis?
(b)In his opinion, would the life expectancy be 12 months or less?
(c)Are there any factors specifically related to this case that give a life expectancy poorer than the medial survival? If so, please outline these.
(d)If there is any further treatment available to Mr Catherwood that could have a positive effect on his prognosis or life expectancy?
(e)If so, what is Mr Catherwood’s treatment plan?
[18] In due course, Dr Edwards provided Asteron with his advice on Mr Catherwood’s prognosis. That advice was succinct. He said:
The aim of the treatment is cure. Obviously it doesn’t always work out that way but I think the chances of Hugh dying in the next 12 months is low ie less than 10%. He is currently having neo-adjuvant chemotherapy prior to planned curative surgery. We plan to reassess his disease with CT scan within a month. This may change the prognosis. From there he would go to surgery. The results of which will determine the prognosis.
[19] Dr Edwards’ response was provided to Mr Catherwood, and, on 19 March 2019, Mr Catherwood emailed Ms Brown directly. It was at this point the diverging views emerged regarding how the definition of “terminal illness” should be read. In his email Mr Catherwood said:
It appears that there is some misunderstanding.
My surgeon, Mr Coulter, has advised me that if I don’t have surgery the cancer will kill me within 12 months. If I have treatment, surgery and chemo, those odds will change considerably.
Mr Edwards response to you sets out the prognosis if I have treatment. The definition of “Terminal Illness” in the policy contemplates my situation without any treatment, and that prognosis is as indicated by Mr Coulter above.
Mr Edwards has also confirmed to me verbally that without treatment I’ll be dead inside 12 months.
[20] This view was provided to Dr Edwards, who queried whether Asteron wanted to know the prognosis without treatment or with treatment, but in any event said:
Hugh is correct in saying that if he didn’t have treatment his survival would be limited. In that case I would expect the majority of patients in his situation would die within 12 months. On the other hand his disease is potentially curable if we treat it (which we are). I expect the chance of cure [is] approximately 50%.
The decision to decline the claim
[21] There followed further email communications in which Ms Brown indicated that Mr Catherwood did not meet the terminal illness criteria of the policy. This culminated in an email from Asteron on 29 April 2019, declining the claim. In it, Ms Brown said:
The terminal illness definition under the policy requires your life expectancy not to be greater than 12 months. This timeframe takes into account any treatment that you may be undergoing for your illness. Based on the current information we have received from Dr Edwards and on the basis you are undergoing chemotherapy, it is expected that your life expectancy is more than 12 months.
At present your condition does not meet the definition of “terminal illness” and must decline your claim for early payment of Life Cover. However, should your situation change and chemotherapy is stopped due to low tolerance, please get in touch with us and provide us with your latest Medical Oncology report so we can re-assess your claim.
[22] That decision was followed up by a formal letter sent on 10 May 2019. The letter advised that Asteron’s chief medical officer had reviewed the claim and he “confirms that there is no evidence that you meet the Terminal Illness criteria and is hopeful that you are on your way to being cured of your illness”.
[23] Mr Catherwood promptly sought a review of the claim, again asserting that the words “regardless of any treatment” meant that Asteron should have no regard to any treatment he may be having. Asteron’s claims review committee reconsidered Mr Catherwood’s claim and, on 12 June 2019, confirmed the decision to decline the claim.
[24] Mr Catherwood then requested that the matter be referred to Asteron’s customer relationship management team in accordance with Asteron’s dispute resolution procedure. That occurred, and on 3 July 2019, Asteron wrote to Mr Catherwood advising that the customer relationship management team confirmed the earlier decision on the claim, which was that he did not meet the definition of terminal illness.
[25] Mr Catherwood completed treatment. It has been successful. Mr Catherwood understands that there is currently no sign of cancer in his body and Dr Edwards, the oncologist, confirms this.
[26] Despite that, Mr Catherwood maintains that he met the policy definition of terminally ill when he made his claim in February 2015 and that he was, and remains, entitled to payment of the sum insured under his life policy. As a result, these proceedings were issued.
Procedural issues arising
[27] The parties were able to agree on the factual background to Mr Catherwood’s claim. No issue was taken with either the history of how the claim was processed, nor the accuracy of the opinion provided by Mr Catherwood’s oncologist, Dr Edwards. A number of briefs of evidence were therefore presented by agreement and the witnesses not called.1
[28] There was, however, a dispute over the admissibility of the evidence of Mr Hutchinson, an expert witness who was called by Asteron. It was brought on the following grounds:
1 Those briefs are admitted under s 9 Evidence Act 2006.
(a)Mr Hutchinson’s evidence regarding other life insurance policies would not “substantially assist” the Court given the issue is how the particular policy in question should be interpreted; and
(b)Mr Hutchinson did not have expertise on the issue of “how a life insurance company should conduct itself when considering a claim by an insured”.2
[29] In a minute I issued on 2 November 2022, I directed that the evidence would be heard on a provisional basis, with the question of admissibility to be addressed in closing submissions, and I would determine the admissibility of evidence in the resulting judgment.
The case for the plaintiff
[30] Mr Brodie, for Mr Catherwood, says the claim is brought for breach of contract. Mr Catherwood asserts that Asteron has wrongly interpreted the definition of terminal illness and declined to pay the benefit he was entitled to under it. By way of relief, Mr Catherwood seeks reimbursement of the monthly premium payments he has made pursuant to the policy from 20 February 2019 to the present time, along with payment of the sum insured, a little over $1,200,000, under the life insurance policy.
[31] Mr Brodie acknowledges that a terminal illness benefit is a standard feature of a life policy in the modern market. He says the benefit is triggered by diagnosis of a terminal illness, and it provides for an early, or “advanced”, payment of the death benefit. The key, therefore, is what constitutes a terminal illness.
[32] The terms “terminally ill” and “terminal illness” are defined terms in the policy. Those items are defined in section 10 of the policy as follows:
terminal illness and terminally ill means
· in the opinion of a specialist medical practitioner; and
· if we require, in the opinion of one of our approved specialist medical practitioners;and
2 These grounds were advised to me in the pre-trial conference held on 2 November 2022.
· in our assessment, having considered medical or other evidence we may require,
your life expectancy is, due to sickness and regardless of any available treatment, not greater than 12 months.
[33] Mr Brodie says the central words in this case are “… and regardless of any available treatment …”, and, in his submission, on their ordinary and natural meaning, those words require the existence and/or prospects of success of any available treatment to be disregarded when Asteron comes to assess whether the insured is “terminally ill”. While he accepts that this might not be the way “terminally ill” is understood in other contexts, for example, a medical professional might say that life expectancy is normally assessed having regard to any available treatment and the likelihood of its success, here, Asteron has chosen to give the words “terminally ill” a defined meaning, and it is this meaning which must prevail.
[34] Mr Brodie acknowledges the correct approach to contractual interpretation, including insurance contracts, is uncontentious. The aim is to ascertain the meaning which the disputed words would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time they entered the contract.3
[35] Mr Brodie emphasises that while context and purpose are necessary elements of the interpretative process, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not necessarily conclusive, indicator of what the parties meant.4
[36] Furthermore, while what makes sense from a commercial or “business common sense” perspective is a potentially important consideration, the Court should not conclude that a contract does not mean what it says simply because, on its plain or obvious meaning, the contract seems overly favourable to one party. Where contractual language, viewed in the context of the document as a whole, has an
3 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444; Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432; and Bathhurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
4 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 3, at [63].
ordinary and natural meaning, a conclusion that it produces a “commercially absurd” result (and therefore needs to be interpreted differently) should be reached only in the most obvious and extreme cases.5
[37] Mr Brodie says the essence of Mr Catherwood’s case is that the words “and regardless of …” have an ordinary natural meaning of “without regard to or consideration of something”.6 If the word “regardless” is given this meaning, then the assessment of life expectancy for payment of the terminal illness benefit requires:
(a)the reduction of life expectancy to no more than 12 months;
(b)this is due to sickness, as defined in the policy, which includes a diagnosis of cancer; and
(c)the assessment that life expectancy is no more than 12 months must be made disregarding available medical treatment.
[38] While Mr Brodie acknowledges that the dictionary definition of “regardless” can also mean “despite”, in his view, the definition of “terminally ill” adopts the first usage by adding the preposition “of” after the word “regardless”. Mr Brodie submits this makes it clear the assessment is to be undertaken without regard to, or consideration of, available treatment.
[39] The availability of this interpretation is, in Mr Brodie’s submission, supported by the fact that Asteron has now changed the wording of the policy. The policy now defines “terminal illness” and “terminally ill” to mean “your life expectancy is, due to sickness and even with available medical treatment, not greater than 12 months”.
[40] Mr Brodie also suggests that an advertising brochure for the policy appears to acknowledge that the underlying purpose of the terminal illness benefit is to give an insured person who faces the likelihood of death some choice as to how the benefit is spent. This brochure states: “If you’re diagnosed with a terminal illness and are
5 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 3, at [93].
6 Angus Stevenson (ed) Shorter Oxford English Dictionary (6th ed, Oxford University Press, Oxford, 2004).
unlikely to live more than 12 months we will advance your death benefit to the policy owner(s), providing funds to help you get the best medical care and plan a secure future for your family.” Mr Brodie says this shows that if treatment is available, the insured can choose to undergo it or not, and if not, then the money can be devoted to securing the family’s future.
[41] Mr Brodie goes on to say there is nothing in the relevant context to displace the interpretation favoured by Mr Catherwood. There is no evidence of prior negotiations or subsequent conduct which could be of any possible relevance. The only context which could be relevant is the balance of the policy document. In that regard, he notes that in section 3.0 of the policy, Asteron also uses the words “regardless of” to mean “disregarding”. Specifically, the insurer promises to:
… continue to renew the policy each year until cover ends … without any more restrictive terms being included, regardless of:
·the number of claims made or
·any changes to your health, occupation or past times.
Furthermore, the phrase “regardless of” is not defined in the policy, and so its ordinary and natural meaning of “disregarding” should prevail.
[42] Mr Brodie also argues that there is no particular commercial reason why the interpretation contended for by the insurer should prevail. A diagnosis of an illness which is so serious that, if left untreated, will result in death within 12 months, is plainly a potentially insurable event. There is no evidence, such as actuarial calculations which influenced the underwriter, to suggest which of the alternative interpretations the premiums in the insurance have been calculated on. Furthermore, an enquiry of that nature would not be permitted as it would be inconsistent with the requirement to interpret the policy according to its terms.
[43] In any event, Mr Brodie submits that the interpretation advanced by the insured is not without difficulties. It opens up a whole new avenue of enquiry as to the availability and potential effectiveness of medical treatment. For example, whether the assessment takes into account:
(a)medical treatment that is only experimental;
(b)medical treatment that carries serious side effects;
(c)medical treatment which is only available overseas;
(d)treatment which is against the insured’s religious beliefs; and
(e)medical treatment that is too expensive for the insured.
[44]These difficulties were recognised by the New South Wales Court of Appeal in
Tower Australia Ltd v Farkas, where it was observed:7
Other cases may be problematical for different reasons. For example, an illness might befall a person whose financial circumstances made it uncertain whether he or she could and/or would choose to have access to treatment without which there would be a high likelihood of death within 12 months. Another hypothetical might involve an illness treatable through blood transfusion that befell a person whose religious beliefs made it unlikely that a transfusion would be accepted. I imply no conclusion in relation to those hypotheticals.
[45] Mr Brodie also rejects Asteron’s submission that Mr Catherwood’s interpretation would be inconsistent with offering the optional Trauma Cover benefit. He says the fact that cancer can be covered under the optional Trauma Cover does not mean that there cannot be similar cover under the life policy. Even under Asteron’s interpretation, there can be a payment under both the Trauma Cover option and the terminal illness cover. The two are not mutually exclusive.
[46] Finally, he says it cannot be said that no insurer would ever write cover for terminal illness in accordance with Mr Catherwood’s interpretation of the policy, in addition to offering trauma cover. There is simply no expert evidence to say that such cover would never be written. Furthermore, even if this was the intention of the insurer in writing the policy, this intention is not common to the insured. The insured’s knowledge of the commercial considerations is limited to the contents of the policy itself.
7 Tower Australia Ltd v Farkas [2005] NSWCA 363, 64 NSWLR 253 at [36].
[47] In the event I find that there are two possible interpretations, and the assessment of the purpose of the clause is not clear enough to resolve the conflict, then Mr Brodie argues that the contra proferentem rule must prevail in favour of Mr Catherwood.8
Submissions for the defendant
[48] Ms Meechan KC, for Asteron, agrees that the insurance contract is to be interpreted objectively. In other words, she says the question for the Court to determine is what, when read as a whole, would the policy convey to a person having all the background knowledge which would reasonably have been available to the parties in the situation they were in at the time of the contract?
[49] In Ms Meechan’s submission, a construction that concludes that Asteron’s objective intention was to pay the maximum benefit payable to an insured who is, on the basis of the medical evidence available, not going to die, is not a reasonable one.
[50] In interpreting the definition of “terminal illness”, she submits it is not a matter of singling out the word “regardless” and determining what that word means in isolation. The issue is whether the terminal illness benefit was objectively intended to be available to someone who was not going to die. Here, the fact there were other benefits available under the policy which would respond to those circumstances is relevant context which points against the wide interpretation of the illness benefit.
[51] Optional benefits, such as the Trauma Recovery option which Mr Catherwood chose to purchase, are triggered simply by diagnosis of certain health conditions. Only the standard benefits contained in section 5.0 of the policy required a prognosis of death within no more than 12 months. By implication, there would be little work for the optional benefits to do if the terminal illness benefit did not require consideration of the impact of medical treatment on the likelihood of death.
[52] Furthermore, Asteron’s approach to the payment of terminal illness benefits is, in Ms Meechan’s submission, supported by the evidence of Mr Russell Hutchinson,
8 D A Constable Syndicate 386 v Auckland District Law Society Inc [2010] NZCA 237, [2010] 3 NZCR 23 at [69].
the director of Quality Product Research Ltd, a company which analyses life and health insurance policies and provides the insurance industry with comparative information on the available policies. His evidence was that such benefits were offered by most New Zealand life insurers, and the common characteristics of terminal illness benefits and policies available on the market are as follows:
(a)they are part of a death benefit and offered to bring forward or accelerate the payment;
(b)they are for use when the client is terminally ill;
(c)terminal illness is generally defined as meaning the client has a life expectancy of less than 12 months.
[53] She pointed out that Mr Catherwood said the broker who advised him to shift to the Asteron policy was someone who did “dot his I’s and cross his T’s”. Despite this, there was no suggestion that the broker advised Mr Catherwood that an advantage of the Asteron policy was the unusually liberal definition of “terminal illness”.
[54] Ms Meechan says the suggestion that Asteron was the only insurer which did not require an assessment of the insured’s actual prognosis before paying a terminal illness benefit would:
(a)be trumpeted as a “selling point” by Asteron; and
(b)be inconsistent with the focus, in all aspects of the contract, on the insured’s personal situation and health.
[55] Ms Meechan submitted that there was no evidence of subsequent conduct that was relevant to interpretation. The decision to market a new policy with changed wording in 2021 was not “conduct during the performance of the contract” that is relevant to intention. The policy document was completely rewritten at the time it was reissued in 2021. In any event, Asteron has consistently committed to early payment of death benefit in circumstances where, despite treatment, the insured is going to die within 12 months.
[56] Finally, Ms Meechan submits this is not a case where the contra proferentem rule should apply. It is a rule of construction of last resort, and, as is said by the authors of Australian and New Zealand Insurance Commentary:
The contra proferentem rule is not applied merely because the language of a provision is ambiguous. It is to be applied only if competing constructions are strongly supported by argumentation and if dictionaries and logic alone cannot readily carry the day for either construction.
Here, there are clear reasons for preferring the insurer’s interpretation.
Discussion
[57] While Mr Brodie submitted that the words “regardless of any treatment” in the definition of terminally ill must, on their natural and ordinary meaning, be read as requiring the insurer to ignore the effects of medical treatment, that is clearly not the only interpretation available. The word “regardless” also can mean “despite the consequences” of.9 Thus, the available interpretations are, in effect:
(a)terminal illness means any illness which, in our opinion, will result in the death of the person insured within 12 months disregarding the effect of any treatment that might be undertaken; or
(b)terminal illness means any illness which, in our opinion, will result in the death of the person insured within 12 months despite the effect of any treatment that might be undertaken.
My task is to decide whether one of these meanings is, on an objective interpretation, more likely than the other.
[58] I start by observing that as a matter of common sense, the idea that someone can be described as “terminally ill” when there is an available cure, is contradictory, and is certainly not the most logical way to read the definition. There would need to be strong indications in both the terms of contract, and any other background circumstances, to suggest that the insurance company intended to adopt a definition of
9 Shorter Oxford English Dictionary, above n 6.
terminally ill which included individuals who were able to be cured by accepting available treatment. I do not consider there are such indications.
[59] When I look at the surrounding context of the policy document, I consider the following factors support Asteron’s interpretation of the definition of terminally ill. First, the terminally ill benefit is part and parcel of the life cover offered, which is only intended to be payable on death. The terminally ill benefit simply accelerates payment of that life cover. It is more logical that payment would be made only in circumstances when death is expected to occur within 12 months rather than also in circumstances when death was possible but could be delayed or entirely avoided by treatment.
[60] The fact that the policy offers optional benefits which an insured can choose to take, at additional cost, and which are payable on diagnosis with a serious illness, also supports Asteron’s interpretation. The Trauma Recovery benefit is payable on diagnosis of the stated illness, or occurrence of the stated surgical event, and so is complementary to the death benefit. The death benefit is, however, only payable if the individual becomes terminally ill or dies. While the event which triggers the Trauma Recovery payment could also trigger the terminal illness benefit if the insured’s life expectancy is no more than 12 months, that is an additional requirement to qualify for the terminal illness benefit. However, there would be considerable, and in my view illogical, overlap between the terminal illness benefit and the Trauma Recovery option if Mr Catherwood’s definition was accepted.
[61] Another factor supporting Asteron’s interpretation is that the policy terminates on payment of the death or terminal illness benefit. This can be contrasted with the ability to choose the “Trauma Reinstatement Option” under the policy where, despite receiving an insurance payment under that option, new cover can be obtained under one of the trauma options. The Trauma Reinstatement Option recognises that people can suffer more than one trauma event as defined in their lifetime and so makes provision for reinstatement of that cover option on specified terms. No such provision applies to the terminally ill benefit. The logical reason for that is that, as Asteron says, the terminal illness benefit simply accelerates payment of the death benefit, and there is no need to make provision for reinstatement.
[62] I accept there is really no other context which has a bearing on interpretation of the policy. While Asteron referred me to promotional material about the policy and explanatory material available to brokers, those are of little assistance. There is no evidence that Mr Catherwood saw these documents and they could not, in any event, alter how the contract was interpreted if it clearly said something to the contrary.
[63] I also note that my conclusion is supported by two Australian cases which were referred to in submissions for Asteron. Neither of the cases are on all fours with the current circumstances, but they illustrate the reasonableness of taking into account the likely outcome of available treatment when deciding whether someone is terminally ill.
[64] The first case is Tower Australia Ltd v Farkas.10 The policy provided both life cover of $100,000 and a “critical illness” benefit of $650,000. Mr Farkas was diagnosed with a malignant form of stomach cancer which had metastasised to his lungs and chest. He underwent extensive chemotherapy and a stem cell transplant, resulting in his disease going into remission. He claimed entitlement to both benefits for which the trigger for cover was the diagnosis of a “terminal illness”. This was defined in the policy to mean:
An illness or condition which is highly likely to result in death within 12 months, where this assessment is confirmed by appropriate specialist medical practitioners approved by us.
[65] The medical experts agreed that if Mr Farkas had not undertaken any treatment, he would have died within 12 months of diagnosis. Mr Farkas argued that on a proper construction of the policy, all he had to establish was a prognosis of death within 12 months as being highly likely, without taking into account treatment that was then available. While this construction was accepted by the Judge at first instance, it was rejected on appeal.
[66] On appeal, Mason P rejected the proposition that proper construction of the definition of “terminal illness” required the insurer to ignore the likely outcome of treatment, saying:11
10 Tower Australia Ltd v Farkas, above n 7.
11 At [34].
The history of medicine is replete with instances of life-threatening diseases that have ceased to be such due to the progress of medical science. Illness or conditions like tetanus and snake bites are no longer generally regarded as fatal, because of the ready availability of relief save in exceptional cases. To refuse to take account of available treatment in any and every case … would be to convert the Policy into a lottery ticket without textual justification and contrary to a fair, commercial and reasonable reading of it. A person with an accidentally cut finger who (without reason) declined all offers of assistance, choosing to bleed to death for want of staunching the wound, would be regarded as the cause of his or her own demise. It would in the circumstances be absurd to regard that person as having suffered an illness or condition highly likely to result in death within 12 months, or any time.
While the decision did not involve a policy which used the words “regardless of any treatment”, it supports the reasonableness of adopting an interpretation which takes account of available medical treatment where this is an available reading of the definition.
[67] In Galaxy Homes Pty Ltd v National Mutual Life of Australia Ltd, the full Court of the Supreme Court of South Australia considered the insured’s entitlement to a terminal illness benefit following the insured’s diagnosis with incurable metastatic melanoma.12 The policy defined terminal illness as follows:
Terminal illness means any illness which, in our opinion, will result in the death of the person insured within 12 months, regardless of any treatment that might be undertaken. Our decision will be based on medical evidence provided to us by the person insured’s doctor, and any other medical evidence that we may require.
[68] The issue in Galaxy Homes was not the interpretation of the words “regardless of any treatment”, but whether the insured person was terminally ill, as defined, before the policy was cancelled. However, it is clear that the Court took into account the effect of available medical treatment in deciding whether the threshold of being “terminally ill” was reached, saying:
[50] … It is not simply a question of whether a person will die within 12 months, the insured must prove that this outcome will occur “regardless of any treatment that might be undertaken”. That whole sentence and the connection between “will” and “regardless of any treatment” is important and supportive of the interpretation of the judge. It shows in our view that even a theoretical recovery from the most expensive and rare treatment is to be taken into account.
12 Galaxy Homes Pty Ltd v National Mutual Life of Australia Ltd [2013] SASCFC 34, (2013) 116 SASR 41.
[51] It is our view that the construction is also based on the commercial setting of the insurance contract. As his Honour says at [60] … it is not a claim for the “life benefit” but for an acceleration of a payment for that benefit. For the reasons explained by his Honour the insurer has used the word “will” to confine the insured’s entitlement. It is intended to be a benefit available only on a restricted basis.
[69] In my view, it is clear that the definition of “terminal illness” and “terminally ill”, construed objectively, is intended to take account of available medical treatment and that is the only reasonable interpretation available. It would be highly strained, and artificial to suggest an insured was entitled to a terminal illness benefit when treatment was available which meant the insured was not likely to die within 12 months.
[70] While Mr Brodie raised concerns about the extent that an insured may have to go to in terms of accepting available treatment in order to qualify for the benefit, those are not considerations that arise in the present case. There was available treatment within New Zealand which, while unpleasant, Mr Catherwood undertook and which, pleasingly, appears to have had the desired “curative” outcome. Furthermore, declining treatment that is available for reasons of cost, risk of side effects, or religious beliefs, does not jeopardise the insured’s entitlement to a terminal illness benefit or life cover. It simply affects the point at which he or she may be able to receive the benefit of it.
Outcome
[71] For the above reasons, Mr Catherwood’s claim fails. Asteron has not breached the terms of the contract of insurance by interpreting the definition of “terminal illness” and “terminally ill” by taking into account the effect of available medical treatment on Mr Catherwood’s life expectancy.
Admissibility of Mr Hutchinson’s evidence
[72] I note that my conclusion was reached without express reference to, or reliance on, the evidence of Mr Hutchinson which was, of course, the subject of challenge. His evidence primarily produced a range of life insurance policies with different accelerated death benefit clauses in the event of terminal illness. That evidence
demonstrated it is common for life insurance policies to have a terminal illness benefit using a definition of terminal illness that focuses on prognosis taking into account medical treatment. Some referred to conditions which “will result in death of the [insured] within 12 months, irrespective of any treatment the [insured] may receive”. Some referred to the condition needing to be “incurable” or “unresponsive to treatment”. One referred to death resulting within 12 months “even with the best medical or surgical treatment available in New Zealand”. Three used similar wording to that used in the Asteron policy, being that death would result within twelve months “regardless of any treatment that might be undertaken”.
[73] In my view, this evidence further supports Ms Meechan’s assertion that if the terminal illness benefit in Asteron’s policy was intended to be paid notwithstanding the insured’s prognosis with treatment, it would be a notable difference in cover which would distinguish it from other policies. There is no evidence to suggest that the insurer, the broker or the client in this case understood the terminal illness benefit to be payable notwithstanding the insured’s positive prognosis with appropriate treatment. As this evidence supports there being a common approach to terminal illness benefits which is not displaced in this case, I rule it admissible.
[74] In terms of the other reservation about Mr Hutchinson’s evidence, I do not consider he gave evidence on how a life insurance company should conduct itself when considering a claim by the insured, nor did he venture to express an opinion on the circumstances surrounding this particular contract. I do not consider, therefore, that Mr Hutchinson’s evidence strayed into areas on which he had no expertise to comment.
Costs
[75] As the defendant has succeeded, costs should follow the event, usually on a 2B basis. If costs cannot be agreed, then I make the following directions:
(a)any application for costs is to be filed and served within 20 working days of the date of this decision;
(b)any memorandum in response to that application is to be filed within a further 10 working days of receipt of the application; and
(c)any memorandum in reply is to be filed and served within a further five working days.
[76]Costs will be determined on the papers unless I need to hear from counsel.
Solicitors:
Meares Williams, Christchurch Annette Quesado, Auckland
Copy To:
G Brodie, Barrister, Christchurch
H Holderness, Barrister, Christchurch
C M Meechan KC, Barrister, Christchurch A Borchardt, Barrister, Christchurch
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