Reported Decision : (2004) 13 ANZ Insurance Cases 61-589 New South Wales Supreme Court CITATION : VERINDER v AUSTRALIAN INSTITUTE OF STEEL CONSTRUCTION LTD & ANOR [2003] NSWSC 975 HEARING DATE(S) : 21/10/03, 22/10/03 JUDGMENT DATE : 31 October 2003 JUDGMENT OF : McDougall J at 1 DECISION : The plaintiff's claim against the second defendant is dismissed. CATCHWORDS : INSURANCE - whether plaintiff was an Insured Person under the policy - whether he could maintain a claim directly against the second defendant - length and extent of plaintiff's disability and whether it fell within the terms of the policy CASES CITED : Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Peter Michael Lovell Verinder PARTIES : v Australian Institute of Steel Construction Ltd and Tyndall Life Insurance Company Ltd FILE NUMBER(S) : SC 2732/00 M W Young (Plaintiff) COUNSEL : P E Cullen (First Defendant) R S Sheldon (Second Defendant) MC Antunes (Plaintiff) SOLICITORS : PriceWaterhouseCoopers Legal (First Defendant) Abbott Tout (Second Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION McDOUGALL J 31 October 2003 2732/00 PETER MICHAEL LOVELL VERINDER v AUSTRALIAN INSTITUTE OF STEEL CONSTRUCTION LTD & ANOR JUDGMENT HIS HONOUR: Introduction 1 The plaintiff ("Mr Verinder") was employed as chief executive of the first defendant ("AISC"). AISC terminated his employment on 24 December 1997. 2 On 22 January 1998, the second defendant issued a group income replacement policy ("the policy") that named AISC as the policy owner. (The second defendant has changed its name twice since the events that are relevant to this case. For convenience, I will refer to it, as it was referred to at the relevant time, as "Tyndall".) Despite its date of issue, the policy was effective from 1 July 1997. 3 The plaintiff injured his lower back on 22 December 1997 and injured it again, and more seriously, on the morning of 24 December 1997. He claims to have been totally disabled, within the meaning of the policy, for a period of some months up until September 1998 and partially disabled, within the meaning of the policy, from September 1998 until August 2000. 4 The plaintiff has made a claim against Tyndall under the policy. Tyndall has refused to meet that claim. The question to be decided in these proceedings is whether that refusal was justified. Factual background 5 In early 1997, Mr Verinder on behalf of AISC, sought to put in place income protection insurance cover for employees of AISC. This was done through a Mr Brad Corby of an organisation known as "Fiscal Link". In early 1997, Mr Corby obtained and provided to Mr Verinder a quotation from Tyndall. 6 It appears, although the evidence is less than clear, that Tyndall was given a list of the employees of AISC who were proposed to be covered. In about March 1997, the list was revised (some employees were happy to take an increase in salary and to forego income protection insurance). Tyndall provided a revised quotation. 7 In early July 1997, Mr Verinder, on behalf of AISC, prepared an application to Tyndall for insurance. That application stated that employees would be eligible for cover "after 12 months [sic] service or earlier by invitation by employer". 8 The application included a document called "At Work Certificate". Mr Verinder signed that certificate on 7 July 1997 in his capacity as chief executive of AISC. The certificate certified that, with the exception of persons listed in section A, all eligible persons were actively participating on a full time basis in the normal duties of occupation on the date of commencement of cover. It stated further that section B listed "eligible employees who did not [sic], or will not be covered when first eligible". No one was listed in section A of the at work certificate. 9 Although the application was not signed until 7 July 1997, it requested a commencement date of 1 July 1997. There was some confusion in the evidence as to whether this was Mr Verinder's idea, or Mr Corby's idea, or a consensus reached between them. I think the better view is that the date of 1 July 1997 was chosen by Mr Verinder for, as he said, reasons of administrative convenience. I do not think that Mr Verinder was influenced in this by any discussions that he may have had with Mr Corby (except that it is possible that Mr Corby told him that it was possible for the inception date of cover under the policy to be earlier than the date of signature on the application). 10 Notwithstanding the terms of the at work certificate (which effectively stated, among other things, that no eligible person was absent from work on the date of commencement of cover), Mr Verinder, who was an eligible person, was absent from work on 1 and 2 July. He signed an application for sick leave on 7 July – the same date as the application for insurance and the at work certificate were signed. 11 On 10 July 1997, Tyndall wrote to Mr Corby enclosing a quotation for the provision of cover under the policy. The quotation named ten employees of AISC, including Mr Verinder, who would be covered. It set out relevant details, including their salary, the monthly benefit that would be payable in the event of total disability and the premium applicable to each of them. 12 It appears that Mr Corby forwarded the application to Tyndall, together with AISC's cheque for the required premium (in accordance with the letter and quotation referred to in the preceding paragraph) of $7,037.51. On 25 July 1997, Tyndall wrote to Mr Corby acknowledging receipt of the application and cheque. Tyndall noted that a number of "members", including Mr Verinder, had benefits exceeding the "Automatic Acceptance Limit". (The automatic acceptance limit was a figure of $3,000 per month. The evidence showed that Tyndall was prepared to accept applications up to this amount without any requirement for medical or other evidence.) Tyndall stated that those members whose benefits exceeded the automatic acceptance limit "will need to be underwritten". The evidence explained that this meant that their applications would need to be assessed by an underwriter. To enable that to happen, Tyndall required (in the case of Mr Verinder and all but one of the named employees): "Application Supplement HIV". 13 These requirements were reiterated from time to time in memoranda passing between Tyndall and Mr Corby, including a memorandum dated 28 January 1998. However, to jump ahead, on 26 February 1998, when the requirements were stated once more, Mr Verinder's name had been omitted. It was submitted for him that this showed that the requirements had been met or waived. The evidence disclosed that this was not the only explanation, and that it could indicate (for example) that Tyndall had become aware that Mr Verinder had left the fund (i.e., the group of employees that was insured under the policy). 14 To continue the digression: on 9 February 1998, Mr Corby sent a "Tyndall Application Supplement" to Mr Verinder for the latter to complete. Mr Verinder completed it and posted it to Tyndall on 16 February 1998. That document, I infer, was the application supplement specified by Tyndall as required from (among others) Mr Verinder. Further, on 10 March 1998, Ms Watzec of Fiscal Link forwarded to Tyndall "medical examination results and hepatitis B & C markers test results" relating to the plaintiff. That material included an "HIV report" prepared by a pathologist. 15 I return to the chronological narrative. On 18 December 1997, AISC's president, Mr Verco, gave Mr Verinder a letter (on the letterhead of Mr Verco's employer and not on the letterhead of AISC). The letter said, relevantly: "… I hereby direct you to immediately leave the office and not to return until further advice from me. You will continue to receive your salary and other benefits. Please do not, however, use company credit cards in the meantime. I further direct you not to contact any employees or members of the Institute until further advice from me. …" 16 When Mr Verco gave the letter to Mr Verinder, he said a number of things including words to the effect that Mr Verinder was suspended from duty. Mr Verinder maintains that Mr Verco was not entitled to suspend him. Having regard to the terms of AISC's Constitution, and to the absence of any evidence that Mr Verco's act was authorised by the "Council" (i.e. board) of AISC, I agree. 17 On 22 December 1997, Mr Verinder injured his lower back whilst he was working at home. The injury occurred whilst he was moving a heavy piece of equipment known as a hydraulic drawing machine. Although there was some attack on Mr Verinder's account of this incident, and on his credibility, I find that it occurred. It is certainly correct to say that there were passages of Mr Verinder's evidence that were difficult to understand. However, in relation to this incident (and in relation to some of the events of 24 December 2001) his evidence was corroborated by that of his wife. It was submitted for Tyndall that she was "unreliable", because her memory of relevant events was restricted to those relating to Mr Verinder's injuries and his seeking medical advice. I do not accept that criticism. I do not find it at all surprising that, after the passage of almost six years, Mrs Verinder's memory would be focussed on what to her were the salient events of the days in question and that, with the passage of time, her memory of others matters (which she had no reason to regard as significant) would have faded into oblivion. I accept Mrs Verinder as a witness of truth and I therefore accept, in substance, Mr Verinder's account of his injuries on 22 and 24 December, and of his contact with a medical practitioner on this latter date. My acceptance of Mr and Mrs Verinder's evidence, as to Mr Verinder's injuries, is supported by the medical evidence to which I will refer. 18 On 23 December, Mr Verinder was to go to a meeting with his lawyer at the offices of AISC's solicitors, the firm then known as Dunhill Madden Butler. He says, and I accept, that he telephoned Tyndall and arranged to collect a claim form and that, before the meeting at the offices of Dunhill Madden Butler, he went to Tyndall's offices in Market Street and collected the mail form. 19 Mr Verinder says that, after he collected the claim form, and before the meeting at the offices of Dunhill Madden Butler, he went to a coffee shop and commenced to fill out the claim form. He says that he completed so much as he could and signed it on behalf of AISC in his capacity as its chief executive. I accept his evidence that he commenced to fill out the claim form on this day. However, I do not accept that he then signed it in his capacity as chief executive of AISC. His evidence on this was inconsistent and confusing. Having observed Mr Verinder in the witness box, it was my assessment of him that he would not sign an incomplete document. As I have noted, he did not regard his suspension as valid, and in my view he was correct in this. However, whilst that might explain why he would have signed the document had it been complete, it does not satisfy me that in fact he did so. 20 The meeting at the offices of Dunhill Madden Butler was relatively brief and inconclusive. The only present significance is that the representatives of AISC who attended, Mr Verco and Mr Landy, asserted that they saw no sign of Mr Verinder's being in pain or being incapacitated. However, both agreed that he was "a stoical" person. Neither knew at that stage that he had been injured (or even that he claimed to have been injured) on 22 December 2003. In those circumstances, and having regard to the passage of time, I do not regard their evidence as showing that Mr Verinder had not been injured on 22 December 1997, or that he was suffering from the effects of that on 23 December 1997. 21 On the morning of 24 December 1997, Mr Verinder fell when getting out of bed. His back pain and associated pain increased significantly. He therefore telephoned a doctor at a practice, Macquarie Health Centre at Baulkham Hills, that he had used in the past. He was put through to a doctor, who I find was Dr L Gunasekera. Mr Verinder told the doctor what happened and the doctor advised him to rest and not to move around and to come in to see a doctor after the Christmas break. Again, Mr Verinder's evidence, both of the fall and of the call to Dr Gunasekera, was corroborated by his wife. I am satisfied that the events that I have described occurred substantially as I have set them out. 22 At 1.15 pm on 24 December 1997 (the time and date are established by a facsimile transmission note) Dunhill Madden Butler, on behalf of AISC, sent to Mr Verinder's solicitors, M C Antunes & Co, notice of termination of his employment. Mr Verinder did not become aware of that until 29 December 1997. 23 On 31 December 1997, Mr Verinder consulted Dr Gunasekera and underwent a series of examinations and x-rays. Dr Gunasekera certified that Mr Verinder was suffering from sciatica and was unable to attend work from 22 December 1997 to 4 January 1998. 24 On 29 January 1998, Mr Verinder sent a completed claim form by post to Tyndall. He sent with it a "disability medical claim form" signed by Dr Gunasekera. Thereafter, Mr Verinder followed up the progress of his claim. On about 23 February 1998, he was informed that it had been disallowed "because you visited your doctor more than 7 days after you left your employment". (The significance of this will become apparent when I refer to the terms of the policy; it is sufficient for present purposes to note that in fact the assigned ground of refusal was incorrect. Mr Verinder's employment was terminated on 24 December 1997 and, even disregarding his telephone consultation with Dr Gunasekera on that day, it is clear that he consulted him on 31 December 1997.) 25 It is unnecessary to go into detail about the further details of Mr Verinder's medical treatment. The evidence discloses that he visited Dr Gunasekera regularly and that Dr Gunasekera continued to certify him as suffering from sciatica (or "rt sided sciatica") and as unable to attend work until 31 August 1998. On 20 July 1998, Dr Gunasekera certified that Mr Verinder was fit for work from 1 September 1998. Dr Gunasekera was unable to give evidence, because he himself was injured and unable to attend court. However, I accept his certification. 26 Mr Verinder consulted an orthopaedic surgeon, Dr Roger Brighton. Dr Brighton obtained CT scans on Mr Verinder's lumbar spine. Mr Verinder consulted him in May and August 1998. Dr Brighton's evidence (including his contemporaneous reports given to Dr Gunasekera) is consistent with the conclusion that I have reached, that Mr Verinder was unable to work, and therefore totally disabled within the meaning of the policy, until 31 August 1998. 27 Further, based on Mr Verinder's evidence, and on the evidence of Dr Brighton, I am satisfied that Mr Verinder remained partially disabled, within the meaning of the policy, from 1 September 1998 until 28 August 2000. The latter date reflects not some dramatic improvement in Mr Verinder's position, but the fact that, on the following day, he commenced full time employment as general manager of a company known as MCS (NSW) Pty Ltd, an engineering and building consultants. 28 Between 1 September 1998 and 28 August 2000, Mr Verinder had worked on his own account in a number of activities that he was able to carry out, through entities controlled by him, in the disparate areas of development and sale of land and introduction and facilitation of home mortgages. The policy 29 Clauses 3.2 and 3.3 are what might be called the "insuring clauses", for, respectively total disability and partial disability. Each of them is expressed by reference to "an insured person" who is, respectively, continuously "totally disabled, or "partially disabled". Neither clause says to whom the benefit is payable (and the same is true of all the other payment benefits specified in cl 3). However, cl 6.7 specifies that "[a]ll benefits will be payable to you". By reference to cl 2.28 and the schedule (Pt 7), "you" means AISC. 30 Clauses 3.2 and 3.3 direct attention to the concept of "insured person". The parties were agreed that it is the proper construction of the definition of that term, and its application to the facts as proved, that is fundamental to the resolution of this case. 31 Clause 2.12 is as follows: "2.12 INSURED PERSON … is an eligible person we have agreed to insure under your policy, and with respect to whom you have paid all premiums we require." 32 There is no specific definition of "eligible person". However, again by reference to the schedule, the basis of eligibility is said to be 12 months' service or earlier invitation. In any event, it was common ground that Mr Verinder was at all material times an eligible person. 33 Tyndall submitted that the terms of cl 1.10 of the policy covered the question of who was an insured person. Clause 1.10 provides as follows: " 1.10 INSURED COVER Unless you select otherwise, an eligible person: * who is at work on the policy start date, or * who becomes eligible after the policy start date and is at work on the first working day after becoming an eligible person, from that day is covered for the benefit amount on the basis last agreed to between you and us, up to the automatic acceptance level shown in the schedule. If: * the benefit amount for an eligible person, on becoming an eligible person exceeds the automatic acceptance level, or * the benefit amount for an insured person increases above the automatic acceptance level, cover for the excess amount will commence after the production of our required evidence which is satisfactory to us, and we have given written advice of our acceptance terms. If an eligible person: * did not become an insured person when first becoming an eligible person, or * was not at work on the policy start date, or * was not at work on the date the person first became an eligible person, cover for the benefit amount will commence after the production of our required evidence which is satisfactory to us, the insured person is at work, and we have given written advice of our acceptance terms. Cover for an insured person will cease on: * the date an insured person retires, or voluntarily ceases to actively perform his or her full-time duties, or has their employment terminated, or * the date an insured person is no longer an eligible person, or * the benefit expiry date, or * the date your policy finishes (clause 1.9), whichever occurs first." The issues for decision 34 At the commencement of the hearing, the parties agreed that the issues that I was to decide were: 1. Was Mr Verinder an insured person, within the meaning of the policy, at any time material to his claim? 2. If Mr Verinder was an insured person at the relevant time, is he entitled to maintain a direct claim against Tyndall upon the basis of the decision in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107? 3. Was Mr Verinder totally disabled, within the meaning of the policy, on and from 24 December 1997? 4. If Mr Verinder was totally disabled, for how long did that total disability continue? 5. Did Mr Verinder become partially disabled, within the meaning of the policy, when (or if) he ceased to be totally disabled? 6. If Mr Verinder if otherwise entitled to recover under the policy, what is the amount of his claim? 35 In relation to what I have called "the relevant time", Tyndall's position is that at no time did Mr Verinder become an insured person. Thus, it does not matter whether the relevant time is 22, 24 or 31 December 1997, or 29 January 1998, or some other time. 36 In relation to the sixth issue, the parties were agreed that, if I found that the plaintiff had been totally or partially disabled (or both) for some time or times, then I should not proceed myself to calculate the amount of his claim. Material has been tendered that would enable this to be done but, both because account needs to be taken of income received by the plaintiff whilst he claims to have been disabled, and because of the need to calculate an indexation factor, it was agreed that the parties should undertake any calculations that might prove to be necessary. 37 The position of AISC was a little unclear. Mr M W Young of Counsel, who appeared for Mr Verinder, stated that no relief was pursued against AISC. However, at the conclusion of the hearing, it appeared to be the agreed position that Mr Verinder's claim against AISC (and, perhaps, some cross-claim by AISC against Tyndall) might revive (or arise) in certain circumstances. Specifically, if I found that Mr Verinder failed only because he had no entitlement to claim direct against Tyndall, then he might wish to pursue his claim against AISC, to compel it to pursue the claim on his behalf or for damages. First issue: was Mr Verinder an insured person? 38 Mr Young submitted that Mr Verinder was an insured person, within the meaning of that term as defined in the policy, because the evidence proved: firstly, that Tyndall had agreed to insure him under the policy; and, secondly, that the premium to insure him had been paid to and accepted by Tyndall. 39 Mr Sheldon of Counsel, who appeared for Tyndall, said that the question, whether or not Mr Verinder was an insured person, was to be answered by reference to cl 1.10 of the policy, and that Mr Verinder was not an insured person because, being an eligible person, he was not at work on the policy start date. Mr Sheldon submitted that this issue was to be answered by reference to the terms of the policy, and not by reference to matters extrinsic to the policy. 40 I do not think that it is correct to say that the issue, whether someone is or was an insured person within the meaning of the policy, can always be answered only by reference to the terms of the policy. However, I do think that the terms of the policy – specifically, cl 1.10 – are the starting point in the enquiry. If it appears that, by reason of some term of the policy, a person is not an insured person, then it does not seem to me to be legitimate to look outside the policy. On the other hand, if the question cannot be answered by resort only to the terms of the policy, it may be appropriate to look further. 41 In my view, a person who is "covered" in terms of cl 1.10, because of the operation of any of the first three sub paras thereof, is an insured person. However, if that person is not an insured person because of the operation of the third of those sub paragraphs, he or she could only become an insured person upon satisfaction of the requirements of that sub paragraph. In that circumstance, the person would not become insured unless the relevant requirements were met or waived. 42 It is clear that Mr Verinder was not "covered" under the first of those sub paragraphs. He was not at work on the policy start date. 43 The second sub paragraph has no application. There is no evidence that any "required evidence which is satisfactory to us" was produced to Tyndall, and there is therefore no evidence that Tyndall had on receipt thereof given written (or indeed any) advice of its "acceptance terms". 44 The third sub paragraph is applicable to Mr Verinder because he was not at work on the policy start date. It follows that he would be covered only on production of the required evidence and upon Tyndall's giving written advice of its acceptance terms. Neither of those things happened. 45 Mr Young relied upon the quotation given by Tyndall to Mr Corby on 10 July 1997 (see para [11] above) and upon Tyndall's acceptance of the application and the cheque for the required premium (see para [12] above). On the face of things, and subject to Tyndall's requirement that some members (including Mr Verinder) provide further information, that might indicate evidence of acceptance of the named individuals as insured persons. However, in the case of Mr Tyndall, any apparent inference of agreement to accept him as an insured person would necessarily depend on it being shown that Tyndall was aware that he was not at work on the policy start date and that, notwithstanding, it had agreed to cover him as an insured person. It is clear that the application signed by Mr Verinder and submitted to Tyndall was inaccurate in that it represented, wrongly, that Mr Verinder was at work on the policy start date. There is no evidence that Tyndall knew of this wrong statement, or that it agreed, notwithstanding such knowledge, to hold Mr Verinder covered, as an insured person. In the circumstances, I do not think that the matters that Mr Young relies upon as evidencing Tyndall's agreement, for the purposes of cl 2.12 of the policy, go so far. 46 Nor do I think that the circumstances outlined in paras [13]and [14] above meet the requirements of the third sub paragraph of cl 1.10. Firstly, on the evidence, the material supplied to Tyndall was required not because of the operation of that sub paragraph, but because Tyndall believed (erroneously, by reason of the matters referred to in the preceding paragraph) that Mr Verinder was an insured person, but one whose benefit would exceed the automatic acceptance limit. The requirements were directed towards the "underwriting" requirements for that higher benefit amount. Secondly, even if I am wrong in this, the third sub paragraph of cl 1.10 requires firstly that the required evidence is produced to the satisfaction of Tyndall, secondly that the insured person be at work, and thirdly that Tyndall give written advice of its acceptance terms. On any view, by the time the statement and medical report were produced, Mr Verinder was not at work. On no view did Tyndall, upon receipt of that material, give written advice of its acceptance terms. 47 I therefore conclude that Mr Verinder was not, at any material time, an insured person. Second issue: Trident 48 It is not necessary for me to decide this issue. However, were it necessary to do so, I would have considered the issue on the basis that the evidence showed that: 1. The policy was taken out by AISC not for its own benefit, or to indemnify it for any liability that it had assumed to its employees, but for the benefit of its employees; and 2. With the exception of benefits under cl 3.12 of the policy (waiver of premium benefit), all benefits under the policy accrued to the employees of AISC so that, if AISC made a claim, the claim would be made for the benefit of the sick or injured employee. Third, fourth and fifth issues: disability 49 For the reasons I have given in setting out the facts, I am satisfied that Mr Verinder was totally disabled, within the meaning of the policy, from 24 December 1997 until 31 August 1998, and that he was partially disabled, within the meaning of the policy, from 1 September 1998 until 28 August 2000. Conclusion and orders 50 I order that the plaintiff's claim against the second defendant be dismissed. 51 I will hear the parties as to the appropriate form of order to be made as between the plaintiff and the first defendant and as to costs. ****** Last Modified: 11/03/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.