TPD: Unreasonable Insurer Decision: Folmer v VicSuper Pty Ltd & Anor [2018] NSWSC 1503

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By David Slatyer, Partner and Jeffrey Sewell, Special Counsel

So went the Judge’s ominous opening remarks in Folmer v VicSuper Pty Ltd, a case involving questions of entitlement to a TPD benefit:

This case is another sad illustration of a dispute that has arisen between the insured, on the one hand, and the trustee of a superannuation fund, and the insurer on risk, on the other, in relation to the entitlement of the insured to benefits, in circumstances where the question whether she became totally and permanently disabled (“TPD”) within the meaning of that term in the policy of insurance and/or under the trust deed of the superannuation fund has been debated.”

Given the relatively modest sum involved ($90,000) and the significant length of the dispute, the immediate signs in this judgment were not positive for the insurer defendant.

Factual background

In March 2006 the Plaintiff was involved in a single vehicle motor accident and police alleged she was intoxicated at the time. The Plaintiff gave evidence that, following her arrest, she had been taken into police custody, searched and assaulted by the police, including sexually. She described this incident as “having ruined my life” (at [56]). She was convicted at trial and a complaint made about the alleged assault was not only dismissed, the Plaintiff was subsequently convicted of making false statements.

The Plaintiff gave evidence about the sequelae of these events, particularly that she had developed a pathological anxiety about police and courts which fettered her ability to effectively discharge her duties as a community development officer and counsellor with a mental health service.

The Plaintiff was subjected to two subsequent significant stressor events, and ultimately ceased work in late January 2008 citing a “mental breakdown”.

The Relevant Policy Wording

The definition of TPD in the group policy held by VicSuper (the Plaintiff was a member) had some uncommon features, underlined below:

… in relation to an Insured Member who has been in gainful work at any time during the two years immediately preceding the Date of Disablement:

(i) the Insured Member has been continuously unable to work because of injury or illness for the TPD Waiting Period; and

(ii) in the Insurer’s opinion (after considering medical and other evidence satisfactory to the Insurer) the Insured Member is unable ever again to work for reward in any business, occupation or regular duties for which he or she is reasonably qualified by education, training or experience;

… 

For the purposes of this definition business, occupation or regular duties means:

  • full-time business, occupation or regular duties where the Insured Member was working at least 15 hours per week at the Date of Disablement …” [emphasis added].

The Claim

In March 2014 (over 6 years after the mental breakdown) the Plaintiff applied for the TPD benefit of $90,000.

In November 2016 the insurer denied the claim by sending a letter to the trustee – the reasons stated the Plaintiff was not receiving medical treatment for her psychiatric disorder at the time of alleged disablement.

In September 2017 the insurer provided further reasons for declining the claim:

The definition also requires that, in our opinion, your client be unable ever again to work for reward in any business, occupation or regular duties for which he or she is reasonably qualified by education, training or experience…

We must be satisfied that the prognostic character of her condition has been established as at 25 July 2008. Unexpected subsequent deterioration, or subsequent illnesses or incidents, are not relevant to our assessment of the claim. We accept that evidence created after July 2008 will be relevant, to the extent that it is pertinent to your client’s condition and prognosis as at July 2008.

In April 2017 the Plaintiff commenced proceedings in the New South Wales Supreme Court against the trustee and the insurer. In summary, the plaintiff claimed that:

  1. She had been wholly incapacitated from working since cessation of her employment in late January 2008 due to, inter alia, mental illness, the cause of which was multifactorial;
  2. She will never work again; and consequently
  3. She is entitled to the capital TPD benefit that had been declined.

The Plaintiff abandoned her claim as against the trustee during the course of the trial. As against the insurer, the Plaintiff challenged its decisions to decline her claim, asserting that each of its decisions was “wrong in law”. She also sought a declaration that she “satisfies the definition of TPD in the Policy” and an order that the Insurer pay to the Trustee, in trust for her, the defined TPD benefit of $90,000.

The Decision

On the ‘stage one’ inquiry the court held that the insurer did not form an opinion that was reasonably open to it; the insurer’s approach to the assessment of the Plaintiff’s claim being deficient in two main respects:

  1. “work” in the definition of TPD in the policy meant full-time work, but the insurer had not identified in its reasons (hence apparently not turned its mind to) any categories of full-time work in the business, occupation or regular duties, for which the Plaintiff was reasonably qualified by education, training or experience, which she would be able to perform; and
  2. the insurer had failed to consider the effect of the member’s medication on her psychological condition. The insurer failed to have due regard to the psychological obstacles, memory deficiencies and competitive disadvantages that would be likely to adversely impact upon the Plaintiff, and failed to consider, in any meaningful way, the likelihood that medication being prescribed for her psychological condition would prevent her working full-time.

Having set aside the insurer’s decision, on the ‘stage two’ inquiry the court was then able to determine whether, on the material available to the court, the Plaintiff’s claim fell within the Policy. The question was whether the Plaintiff’s incapacity objectively satisfied the TPD definition at the relevant assessment date.

The insurer held the view that there was a lack of objective contemporaneous evidence regarding the reasons for ceasing employment and a lack of attendance for medical treatment at the time. The court did not think that to be affair assessment of the evidence, noting as follows (we paraphrase):

It is likely that her psychological condition identified prior to January 2008 and her memory problems contributed to her ceasing work. The Plaintiff stated it on oath several times and it was not put to her in cross examination that she was untruthful in this regard. 

The statement that the plaintiff was not obtaining treatment was inconsistent with and contrary to the contents of her clinical progress notes.

Her conduct overall did not present a picture of a person not prepared to work if able to do so.

The court concluded:

In my view, the Plaintiff was, as at 25 (or 28) January 2008 [i.e. the date she ceased work], and for the 6 month period thereafter, an extremely vulnerable personality who was unlikely to be able to deal with the stressors of everyday life, and particularly everyday working life, particularly working life as a social worker. 

In my view, her condition was likely to continue thereafter as there was no suggestion of any resolution of the psychological condition. Her continued medication, albeit, in varying doses, would not assist in this regard. 

The Plaintiff, therefore, is entitled to a declaration to that effect and orders that the Insurer pay the sum of $90,000, plus interest, to the Trustee, for distribution to the Plaintiff.

It is important for a decision maker to address key criteria in the TPD definition and where that is not done (in this case the decision was silent on the question for “full time” work capacity) the decision is vulnerable to being set aside by a court.

Further, a decision maker should fairly consider the practical impacts of medication on the question of vocational capacity, which feature itself may be (it was in this case) a significant component of the person’s incapacity. Of course, in some cases taking medication may improve a person’s vocational capacity, but in others it may have an adverse impact. The issues must be addressed reasonably and in good faith.

For further information, please do not hesitate to contact us.

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