By David Slatyer, Partner and Jeffrey Sewell, Special Counsel
The Supreme Court of New South Wales recently delivered the above decision with respect to a claim for the capital benefit for Total and Permanent Disability (‘TPD’) under a group insurance policy for police officers.
The decision may be of interest to insurers for two reasons:
- The plaintiff questioned the well established “two stage” procedure for Courts to determine challenges to declinature of claims for TPD benefits; and
- Her Honour Justice Rees propounded interesting dicta concerning a preferred procedural approach to litigated disputes regarding TPD claims.
The plaintiff is a former NSW police officer. He was medically discharged in 2010 and received workers’ compensation benefits on the basis of partial permanent disability. The plaintiff proceeded to make a claim on two insurance policies on the basis that he was and is totally and permanently disabled by reason of suffering chronic Post-Traumatic Stress Disorder (PTSD). The insurer, MetLife, declined the claims.
In 2013, Mr Burke commenced proceedings against MetLife.
The plaintiff claimed that his alleged PTSD was caused by two primary events:
- His on-duty attendance at a siege in 1996 at which he alleged the perpetrator aimed a gun at him and threatened to shoot (for which the plaintiff made a workers’ compensation claim for PTSD at the time); and
- Investigations, arrests and disciplinary action taken by NSW Police against the plaintiff regarding:
- The plaintiff’s involvement in a violent altercation in 2005 while the plaintiff was off-duty;
- The plaintiff’s allegedly false reporting of the circumstances of that altercation; and
- Drink driving and serious traffic offences in 2006.
The insuring clause
The definition of TPD in the policy was a common one. Relevantly, it provided that a “covered person” is TPD if:
“the Covered Person, having been absent from their Occupation through Injury or Illness for 6 consecutive months, and having provided proof to the satisfaction of us that the Covered Person has become incapacitated to such an extent as to render the Covered Person unlikely ever to engage in or work for reward in any occupation or work for which he or she is reasonably qualified by reason of education, training or experience.”
The insurer’s reasons
In summary, the insurer declined the plaintiff’s claims because:
- Contemporaneous evidence demonstrated that the plaintiff’s 1996 PTSD episode had resolved completely by no later than 1998;
- The investigations, arrests and disciplinary action surrounding the 2005 and 2006 events could not have caused a PTSD because the clinical definition of PTSD requires that the event or events amount to “exposure to actual or threatened serious injury or death”;
- Therefore, the plaintiff does not have a PTSD; and
- Further, the plaintiff demonstrated he can engage occupations or work for which he is reasonably qualified by actually working as a fitness trainer (for which he became qualified before leaving the police force and making the TPD claim).
All of the above was subject to challenge, extensive evidence and analysis by her Honour, but it is unnecessary to explore that here.
The plaintiff’s challenge to the “two stage” approach
The parties agreed that the law as it stands is settled that the Court is to follow a two-stage enquiry. The stages are:
- Stage 1: The Court is to determine whether an insurer’s decision to decline a claim was made following a reasonable and fair process of consideration, and was reasonable and fair on the material before it at the time the decision was made. This does not involve the Court deciding whether it would or could have reached a different opinion on that material, only whether the insurer acted reasonably and fairly. If the Court determines that the insurer did act reasonably and fairly, the claim fails; and
- If the Court determines that the insurer did not act reasonably and fairly, the Court then makes its own determination as to whether the plaintiff is TPD. In doing so, the Court is not limited to the material that was before the insurer when the claim was declined, but can consider other admissible evidence.
The plaintiff in the present case submitted that there ought to be a ‘third stage’, namely a preliminary enquiry concerning the insurer’s duty to act with utmost good faith. The plaintiff claimed that, by 4 November 2015, the insurer was in breach of its obligation to make a timely decision. He submitted that any enquiry regarding the reasonableness of the insurer’s decision should be limited to material in the possession of the insurer as at that date.
In other words, the Court should assess what would have occurred if MetLife had made a decision on 4 November 2015, otherwise MetLife could profit from its breach by being able to obtain further evidence adverse to the claim.
This was rejected and the “two stage” process survived the challenge. Her Honour stated:
“As matters stand, there is no authority in cases in this field to support a preliminary stage and I do not propose to depart from the two-stage approach dictated by authority which binds me.”
Her Honour noted the voluminous material obtained and considered by MetLife before declining the claim. As to whether the plaintiff has a PTSD, her Honour observed that the weight of the medico-legal opinion was favourable to the plaintiff, but it was predicated on the plaintiff’s own reporting, which was unreliable and contradicted by other evidence. In the circumstances, it was reasonable for the insurer to prefer the dissenting opinions.
Further, there was information before MetLife that the plaintiff had previously trained to be a personal trainer and had worked as such, as evidenced by his tax returns. There was also evidence that he had worked in his brother’s business as a water-proofer and had given consideration to re-training in that field. Consequently, it was reasonable for MetLife to conclude that the plaintiff was not incapacitated in accordance with the policy definition, that is, within his ETEs.
Therefore, the claim was dismissed at Stage 1 of the enquiry.
Her Honour stated that, had she been required to proceed to the Stage 2 enquiry, she would have similarly dismissed the claim.
Her Honour was critical of the common practice that has developed for both Stage 1 and Stage 2 of the TPD entitlement enquiry to be heard together before the same judge, because it is only if the plaintiff is successful on Stage 1 that Stage 2 is heard. Her Honour’s dicta said the current practice is unsatisfactory for the following reasons:
- If Stage 1 had been listed for hearing alone, then it would not have been necessary to call any witnesses, but simply to tender the documentary material, saving a great deal of time and costs; and
- The task for the judge on Stage 1 alone would have been more confined, requiring the judge to read the documents and, effectively, decide the matter ‘on the papers’. This avoids the difficulty for a judge of “quarantining the evidence in one’s mind” relevant to Stage 1 from the evidence relevant to Stage 2.
It remains to be seen whether there will be any further challenges to the long held “two stage” approach. The judge in this case was unwilling to make new law, so unless the point is appealed it is unlikely that similar challenge will be made in other cases.
Her Honour’s invitation to parties to sever the hearing of the two stages is, with respect, meritorious. There could be significant time and costs savings for insurers by encouraging plaintiffs to seek a declaration with respect to the Stage 1 enquiry, before taking any stage 2 proceedings.
Given the plaintiff pinned his case on a narrow illness (PTSD) and had qualified and worked as a personal trainer whilst still employed with the police force, his case was with difficulties. One also gets the impression the plaintiff was not regarded by the Judge as a reliable witness, ironically something which may not have been easily discerned by the Judge in a Stage 1 only enquiry.
 See discussion below.
 The plaintiff continued to add other events as allegedly contributing to his condition as the claim progressed, but these formed the main thrust of the plaintiff’s claim.
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