Catherwood v Asteron Life Ltd

[2021] NZHC 2612

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-000314

[2021] NZHC 2612

IN THE MATTER

of the Declaratory Judgments Act 1908

BETWEEN

HUGH RODERICK CATHERWOOD

Applicant

AND

ASTERON LIFE LIMITED

Respondent

Hearing:

23 September 2021

Appearances:

C A McVeigh QC for Applicant

C M Meechan QC for Respondent

Judgment:

1 October 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 1 October 2021 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

CATHERWOOD v ASTERON LIFE LTD [2021] NZHC 2612 [1 October 2021]

[1]    The applicant, Hugh Roderick Catherwood (Mr Catherwood), entered into a life insurance policy with Asteron Life Ltd (Asteron) in 2009. In February 2019, he made a claim for payment of a terminal illness benefit under the policy. Asteron declined his claim on the basis he was not suffering from a terminal illness within the meaning of the policy. Mr Catherwood intends to seek a declaratory order as to the proper construction of the policy believing that “all other things being equal” if his construction is accepted, Asteron will be obliged to pay the proceeds of the policy to him.

[2]    An application for a declaratory order is ordinarily brought under pt 18 of the High Court Rules 2016.1 The matter before me is an application by Mr Catherwood pursuant to r 19.5(1) of the High Court Rules for an order permitting him to bring his proceeding by way of originating application under pt 19. He considers that the pt 19 procedure is the most efficient and least costly manner of determining the proceeding.

[3]    The application is opposed by Asteron. It considers that Mr Catherwood’s claim is for breach of the insurance contract and ought properly to be brought as an ordinary proceeding under pt 5 of the High Court Rules. Asteron argues there is nothing exceptional or unusual about this claim such that dealing with it under anything other than pt 5 is required “in the interests of justice”.2

The background

[4]    On 23 October 2009, Mr Catherwood entered into a SmartLife policy with Asteron. At all material times the policy was in full force and effect.

[5]The relevant terms of the policy for present purposes are the following:

5.2     Terminal Illness Benefit

If you become terminally ill while covered under this policy, we will pay the sum insured for the SmartLife cover.

…

10.0Commonly used words or expressions

1      High Court Rules 2016, r 18.1(b)(v).

2      Rule 19.5(1).

…

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

·      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.

[6]    On 31 December 2018, Mr Catherwood had a scan which revealed a cancerous tumour. In January 2019, he was seen by his surgeon, Mr G Coulter, and his oncologist, Mr J Edwards. The doctors confirmed a cancer diagnosis and told him that his condition would be terminal within 12 months if he did not have treatment.

[7]    On 20 February 2019, Mr Catherwood made his claim to Asteron under the policy for a terminal illness benefit. On 10 May 2019, Asteron declined the claim. It is important to note at this juncture that Asteron did not have before it an opinion from Mr Coulter. Information provided to Asteron did include material from Mr Edwards and was directed to the issue of Mr Catherwood’s life expectancy should he receive treatment. Relevantly, this information included the following notes:

The aim of 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 re assess 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.

[8]    In its letter to Mr Catherwood of 10 May 2019 declining his claim, Asteron referred to the policy definition of terminal illness and terminally ill and noted that based on the information that had been received from Mr Edwards, Mr Catherwood’s life expectancy was more than 12 months. It was also noted that Mr Catherwood was responding to treatment and that a review by Asteron’s Chief Medical Officer of the information provided showed no evidence that he met the terminal illness criteria.

[9]    Mr Catherwood sought a review. On 3 July 2019, Asteron wrote to him that upon review of the  claim  and  the  medical  information  received  its  view  that  Mr Catherwood’s life expectancy was more than 12 months remained unchanged. Asteron recorded the difference of view between it and Mr Catherwood as to how the policy was to be interpreted. Specifically, Mr Catherwood believes any treatment available to him should be ignored when considering whether his life expectancy was “not  greater  than  12  months”.  Asteron’s  view  is  that  it  has  to  be  satisfied   Mr Catherwood’s illness would result in death within 12 months, regardless of any treatment that he received or that may be available to him in that period.

[10]   Mr Catherwood then instructed Meares Williams Lawyers to act for him. In a letter of 6 March 2020, Meares Williams wrote to Asteron asserting that it was irrelevant for determining whether in terms of the policy Mr Catherwood was suffering from a terminal illness that he might receive treatment that “may or may not prolong his life expectancy”. A response on behalf of Asteron dated 27 March 2020, again, rejected Mr Catherwood’s stance noting that in concluding Mr Catherwood was not terminally ill in terms of the policy Asteron had taken into account the opinion of  Mr Edwards that Mr Catherwood was receiving effective treatment and that his chance of dying within 12 months was less than 10 per cent.

[11]   In a letter of 23 November 2020, Meares Williams raised the prospect that  Mr Catherwood would seek a declaratory order as to the construction of the policy and asked for Asteron’s consent to the bringing of such an application under pt 19. Asteron responded on 3 December 2020 stating that the resolution of the dispute between   Mr Catherwood and Asteron was not suitable for resolution by way of the pt 19 procedure. They wrote:

Mr Catherwood’s claim is for an amount of money based on an asserted entitlement to a benefit under the SmartLife policy. This claim has been declined by Asteron. Mr Catherwood’s remedy is not for a declaration under the Declaratory Judgments [Act] 1908, but simply for damages for what we understand he maintains is a breach by Asteron of its obligations under the policy. Asteron has of course denied any obligation to pay the benefit and consequentially any breach.

The claim is therefore, with respect, a perfectly standard claim for damages for breach of contract. The claim will need to be pleaded in the normal way and a defence filed. There will also need to be discovery, although we accept that the extent of documents relevant to the dispute will be relatively limited.

It would include Mr Catherwood’s medical records and Asteron’s claim file/records of its claim’s assessment.

[12]   On  8  December  2020,  Meares   Williams   again   wrote   on   behalf   of Mr Catherwood requesting, inter alia, clarification as to whether Asteron accepted the specialist diagnoses Mr Catherwood had received that his probable life expectancy in the absence of treatment was less than 12 months. Asteron responded in an undated letter that, although it did not take issue with the specialist opinions, it did not advance matters to focus on the issue of what Mr Catherwood’s life expectancy would have been had he not undergone treatment.

Submissions

Mr Catherwood

[13]   Mr Catherwood’s view is that this is an appropriate case to seek a declaratory order as to the proper construction of the insurance policy. He considers this a single issue case based on the following propositions. First, that there is no challenge to the view of his medical specialists. Second, the sole reason Asteron will not pay the terminal illness benefit is because it maintains the correct construction of the terms terminal illness and terminally ill means it has no legal obligation to do so. Third, there are only two interpretations of the policy contended for and if Mr Catherwood’s interpretation is correct, Asteron will be obliged to make payment of the benefit to him.

[14]   Mr McVeigh QC argues Mr Catherwood is entitled to commence the proceeding for a declaratory order under pt 18 as of right. The only issue for the Court on this application is, he contends, whether it is appropriate to adopt the pt 18 or pt 19 procedural pathway.

[15]   Mr McVeigh notes there have been cases where the Court has allowed applications for declaratory orders to proceed under pt 19. He also relies on Clarkson v Clarkson,3 where Cooke J found the key difference between pt 18 and pt 19 is that under pt 18 the proceeding is subject to full case management, whereas under pt 19

3      Clarkson v Clarkson [2020] NZHC 2211 at [9] to [17].

there is more confined case management control. 4 There, Cooke J also held that in deciding the most appropriate procedural pathway for a proceeding the Court should focus on what the issues in dispute seem to be and the most appropriate procedural pathway for determining them.5

[16]   Here, Mr McVeigh submits the pt 19 procedure is the preferred approach because:

(a)Asteron does not dispute the opinions of Mr Catherwood’s specialist doctors as to his life expectancy if he did not receive treatment;

(b)the area of dispute between the parties concerns only the proper construction of the insurance policy;

(c)there are only two parties to the dispute and directions as to service under pt 18 will not be required;

(d)detailed pleadings are not required as the originating application and the notice of opposition clearly define the issues;

(e)it cannot be said that any documents in the possession of the parties could be discovered as being relevant to this dispute other than the insurance policy which is already in evidence;

(f)there will be limited need for any interlocutory applications;

(g)the evidence will be within a very narrow compass and that other than the insurance policy itself, there is only evidence from Mr Catherwood and his two specialist medical practitioners; and

(h)it is highly unlikely that any extensive or detailed case management will be required.

4 At [16].

5 At [17].

[17]   It is submitted for Asteron that this is not a single issue case, because the Court will need to consider not only the terms of the policy but also whether Asteron was entitled to take the position it has in relation to policy coverage based on the information before it.6 In response, Mr McVeigh argues it cannot be correct that Asteron is entitled to take a position rejecting the claim based on an incorrect interpretation of the policy.7 He submits that in rejecting Mr Catherwood’s claim Asteron failed to ask itself the correct question, and:

… any issue as to the reasonableness of the Respondent’s actions would arise only in respect of Asteron’s conduct following its determination of the correct question. It might occur, for example, if there were conflicting medical opinions (which is not the case here).

Asteron

[18]   Asteron argues the authorities demonstrate that the “interests of justice” threshold in r 19.5 is high. The pt 19 procedure is intended to be limited to exceptional cases and none of the cases relied upon by Mr Catherwood involve a claim such as this which is a straightforward claim for breach of contract.

[19]   Asteron argues this is not a case where the Court has to choose whether the appropriate pathway is under pt 18 or pt 19. It says Mr Catherwood’s claim is for breach of contract and the most appropriate and efficient procedure available to deal with it is under pt 5 of the High Court Rules.

[20]   Asteron does not accept Mr Catherwood’s stance that this is a single issue case, involving limited evidence beyond what is already before the Court and not requiring discovery, interlocutory applications or case management. It contends that in determining whether or not Mr Catherwood is entitled to be paid under the policy, the Court will need to determine not only what the terms of the policy mean but also whether Asteron acted reasonably in reaching its decision in relation to policy coverage on the information that it had before it.8

6      van der Noll v Sovereign Assurance Co Ltd [2013] NZHC 3051 at [94] – [97]; Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Insurance Cases 61-113 (NSWSC).

7      Percy v Sovereign Assurance Co Ltd [2014] NZHC 1573 at [5] and [7].

8      van der Noll v Sovereign Assurance Co Ltd, above n 6, at [94] – [97], Edwards v Hunter Valley Co-op Dairy Co Ltd, above n 6.

[21]   Relying on the Supreme Court’s decision in Firm PI 1 Ltd v Zurich Australian Insurance Ltd, Asteron submits the correct approach to interpreting an insurance policy is objective and contextual, the aim being to ascertain, “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were in at the time of the contract”.9 Ms Meechan QC argues, here, the Court will need to consider the factual matrix in which the policy was put in place. There will be evidence as to underwriting considerations that sit behind the policy terms and the information that was available to Mr Catherwood and/or his broker at policy inception. She also submits the Court will need to consider what information Asteron had before it when deciding to reject the claim and its claims handling process. In respect of these issues discovery will be required (albeit it may not be extensive) and the evidence should be led in the usual manner with cross-examination. Ms Meechan also notes Asteron did  not  have  Mr Coulter’s  opinion  at  the  time  it  declined  Mr Catherwood’s claim (or until this proceeding was filed) and it is entitled to test his evidence as to Mr Catherwood’s prognosis.

Authorities on pt 19

[22]   This application is made in reliance on r 19.5(1) of the High Court Rules which provides:

The court may, in the interests of justice, permit any proceeding not mentioned in rules 19.2 to 19.4 to be commenced by originating application.

[23]   The authorities establish that resort to r 19.5 is to be “exceptional rather than so common place that it becomes the rule that leave is granted.”10 The overarching test is whether it is in the interests of justice that a proceeding be allowed to be brought under pt 19. The interests of justice mean that the Court must secure the just, speedy and inexpensive determination of the proceeding.11

9      Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60] citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912.

10 Solar Bright Ltd v Martin [2019] NZHC 300 at [18].

11 At [18].

[24]In Hong Kong and Shanghai Banking Corp Ltd v Erceg, Asher J said:12

[25]   These cases show that the type of proceeding suited to the originating application procedure is a straightforward application, not requiring detailed pleadings or interlocutory orders for its fair resolution. Such a type of proceeding tends to be an application under a specific statutory provision, where the issue that arises can be clearly defined, and the issues confined. The procedure is not well suited to the determination of substantive rights involving the application of common law doctrines as distinct from statutory tests. It is not well suited to cases involving multiple parties, and cases where there is the possibility of cross claims or counterclaims.

[25]   Ms Meechan referred to Public Trust v Kain where Venning J dismissed an application to bring an application for directions by a trustee by way of originating application under pt 19.13 She emphasised Venning J’s comment that the primary procedure for resolving disputes is by way of general proceeding under pt 5 and that pts 18 and 19 provide alternative means for proceedings where pt 5 may not be appropriate. Venning J also noted:14

… The originating application procedure in Part 19 is, broadly speaking, analogous to the interlocutory application procedure. Part 19 was initially designed as an expedient for cases where there was in reality no opposing party but that narrow approach is no longer strictly applied. Its procedure is generally used where it is not necessary to have full pleadings and interlocutory steps such as discovery for proper determination of the issues. While it is possible for orders as to discovery to be made in originating application proceedings, the Court will generally adopt a conservative approach towards such applications.

[26]   More recently in Clarkson v Clarkson, Cooke J compared the pts 18 and 19 procedures.15 There, leave was granted to bring an application seeking the removal of trustees, the appointment of an independent trustee and for a variation to the terms of the trust deed using the pt 19 procedure. This was despite there being strong disagreements between the parties and contested evidence. The interests of justice requirement in r 19.5 was met because of the possibility the parties may lose perspective and the real prospect that the proceeding would be uneconomic.16 In those circumstances, Cooke J considered it appropriate to be guided by the procedural pathway that reduced the prospect of unnecessary interlocutory steps and focused on

12     Hong Kong and Shanghai Banking Corp Ltd v Erceg (2010) 20 PRNZ 652 (HC).

13     Public Trust v Kain [2018] NZHC 1547.

14     At [35] (footnotes omitted).

15     Clarkson v Clarkson, above n 3.

16 At [18].

what was necessary to enable the dispute to be resolved.17 Cooke J noted while use of pt 19 would not be appropriate procedure for cases requiring pleadings, interlocutory steps such as discovery and cross-examination, all of these can be ordered under pt 19 but are subject to greater judicial control.

[27]   However, it is clear that usually it will not be appropriate to grant leave to bring a proceeding under pt 19 when there is an appropriate and efficient alternative available. This point was made by Asher J in Hong Kong and Shanghai Banking Corp Ltd v Erceg when he said:18

[20] The originating application procedure is, in contrast to standard proceedings, short and simple. It is initiated by an application, and there is no need for a statement of claim particularising the causes of action, or for statements of defence, replies or counterclaims. There are no procedures set out for discovery and interrogatories. The matter notionally can be set down immediately. Orders akin to those in standard proceedings could be made in originating applications utilising r 19.11, which applies r 7.92 originating applications. Rule 7.9 gives a judge wide powers to make interlocutory orders to secure the just, speedy and inexpensive determination of a proceeding… However, it would be undesirable for the courts as a matter of course to allow parties to commence proceedings by way of originating application which required a statement of claim, statement of defence and other interlocutory procedures, and to then as a matter of course make such orders as are necessary under r 7.9 or the Court’s inherent jurisdiction. That would damage the procedural structures established by the Rules, and by practice. Rule 7.9 should not be invoked under r 19.11 as a way to bypass the need to file standard proceedings, when standard proceedings are appropriate.

Discussion

[28]   There is merit in Asteron’s submission that Mr Catherwood’s claim should be pursued under pt 5. Mr Catherwood contends Asteron has breached the policy by not paying him the benefit. Ultimately Mr Catherwood’s aim is to have the proceeds of the policy paid to him. The primary procedure for resolving such disputes is pt 5 by way  of  a  general  proceeding.19  Further,  if  the  case  is  as  straightforward  as   Mr Catherwood contends it seems to me it would be more efficiently and appropriately determined as a summary judgment application under pt 12.

17 At [19].

18     Hong Kong and Shanghai Banking Corp Ltd v Erceg, above n 12.

19     Public Trust v Kain, above n 13, at [35].

[29]   That said, I do not accept Asteron’s submission that there is no need for me to consider whether Mr Catherwood’s intended proceeding should be brought under pt 18 or pt 19 because “[a] straightforward claim for breach of contract should be resolved under Part 5 of the High Court Rules.” It is a matter for Mr Catherwood to decide his choice of remedy and if that choice is a declaratory order he is entitled to issue that proceeding under pt 18 as of right. I therefore agree with Mr McVeigh that the contest on this application is between pt 18 and pt 19 of the High Court Rules.

[30]   The issue I must decide is whether Mr Catherwood has satisfied the Court that despite the express provision in the Rules that applications under the Declaratory Judgments Act are to be brought under pt 18, in the interests of justice leave should nevertheless be granted to permit his application to proceed as an originating application under pt 19.

[31]   Despite all that Mr McVeigh has submitted, I am firmly of the view it would be inappropriate to grant Mr Catherwood leave to proceed under pt 19. The proposed application does not involve the application of a statutory test, as is the case with proceedings typically considered appropriate to resolution under pt 19. It will require the application of common law principles of contractual interpretation to the particular circumstances of this case.

[32]   I do not accept Mr Catherwood’s contention that the making of a declaratory order  will  be  determinative  of  the  dispute  between   him  and  Asteron.   On    Mr Catherwood’s view if, in determining whether due to sickness his life expectancy was not greater than 12 months, Asteron was not entitled to take into account treatment that was available to him, then he must be paid the benefit. If, on the other hand, Asteron was entitled to take the availability of treatment into account, Mr Catherwood accepts he is not entitled to the benefit. I consider this analysis is only correct if the Court were to agree with Asteron’s interpretation of the policy. I do not accept that if the Court accepts Mr Catherwood’s interpretation of the policy it follows he is entitled to payment of the benefit.

[33]   Although to date Asteron has not challenged the evidence of Mr Catherwood’s medical specialists, on its view of the policy, it has no reason to do so. The opinion

expressed in Mr Edwards’ notes that were provided to Asteron were accepted by it in reaching the view the claim  should  be  declined.  The  medical  information  that Mr Catherwood put before Asteron made no assessment of his life expectancy without treatment. It did not therefore address the question that Mr Catherwood says Asteron had to consider which is whether, if one disregards all treatment options available to Mr Catherwood, his condition would be terminal within 12 months. Should the Court make a declaration that in assessing Mr Catherwood’s claim Asteron could not take into account available treatment that would require Asteron to reassess the medical evidence in light of that finding. Asteron would also need to consider whether its decision to decline Mr Catherwood’s claim was nonetheless correct upon the information that it had before it. Ms Meechan has foreshadowed the possibility that Asteron will wish to test Mr Coulter’s opinion which it only received upon the filing of this application.

[34]   Mr McVeigh submits that as there are only two parties to the dispute directions as to service under pt 18 will not be required. I agree, but directions as to service will not be necessary whether Mr Catherwood proceeds under pt 18 or pt 19. It is a neutral factor.

[35]   Mr Catherwood submits detailed pleadings required under pt 18 should not be required as the originating application and the notice of opposition clearly define the issue. I do not agree. The proposed originating application and notice of opposition do not define the issue and the discipline of formal pleadings would be beneficial in this case.

[36]   Mr McVeigh argues it cannot be said there are any documents, other than the insurance policy, relevant to the dispute that could be discovered and the need for interlocutory  applications  does   not   immediately   spring   to   mind.   I   accept Ms Meechan’s submission that discovery will be required in this case in respect of such matters as the information available to Mr Catherwood and/or his broker when entering into the policy and the benefits payable under it and Asteron’s claims and review processes. While there may be limited need for any interlocutory applications it is too early to make any realistic assessment of that. There may well be applications

in relation to discovery and as to the admissibility of evidence Ms Meechan has identified Asteron may wish to call.

[37]   Then it is argued the evidence will be within a very narrow compass and that other than the insurance policy itself, the only evidence will be from Mr Catherwood and  his  two  specialist  medical  practitioners.  That  may  be  all  the  evidence    Mr Catherwood wishes to call but as Ms Meechan has highlighted that will not be the case as far as Asteron is concerned. She has identified several matters upon which Asteron will wish to call evidence.

[38]   Finally, it is argued that it is highly unlikely that extensive case management will be required. I consider that given the need for discovery, the possibility of interlocutory applications, and the possibility of disputes as to the scope of evidence, case management is desirable.

[39]   Leaving aside my reservations about Mr Catherwood’s decision to seek a declaratory order (which I accept is a matter entirely for him) I am not satisfied the interests of justice require his application to be determined under pt 19.

Result

[40]   Mr Catherwood’s application for leave under r 19.5(1) of the High Court Rules 2016 to commence his proceeding for a declaratory order by way of originating application is refused.

[41]   I know of no reason why costs should not follow the event but counsel shall confer as to costs and only if they cannot agree file memoranda within 21 days.

O G Paulsen Associate Judge

Solicitors:

Meares Williams (R Cooper), Christchurch

Annette Quesado, Legal, Suncorp New Zealand, Auckland