New South Wales Supreme Court CITATION : Newey v First Superannuation Pty Ltd [2009] NSWSC 1100 HEARING DATE(S) : on the papers JUDGMENT DATE : 16 October 2009 JURISDICTION : Equity Division JUDGMENT OF : Rein J DECISION : 1. Judgment for the defendants. 2. The plaintiff to pay the defendants' costs of the determination on the papers and court appearances on 28 August 2009, 2 September 2009 and today on the ordinary basis but to a maximum amount of $5000. CATCHWORDS : INSURANCE – accident and sickness insurance – claim for total and permanent disablement benefit – only issue remaining is recoverability of interest pursuant to s 57 Insurance Contracts Act 1984 (Cth) and costs – whether or not insurer ought to have deferred determination of claim which it subsequently paid – whether or not insurer was of the opinion or ought reasonably have been of the opinion that plaintiff met the total and permanent disablement definition at an earlier time - PROCEDURE – costs – general rule costs follow the event – cap imposed on costs recoverable LEGISLATION CITED : Insurance Contracts Act 1984 (Cth) CATEGORY : Principal judgment Dumitrov v SC Johnson & Son Superannuation Pty Ltd [2006] NSWSC 1372 Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113 CASES CITED : Hanover Life Re of Australasia Ltd v Sayseng [2005] NSWSCA 214; (2005) 13 ANZ Ins Cas 90-123 NRMA Insurance Ltd v Tatt (1989) 5 ANZ Ins Cas 60-902 Tower Australia Ltd v Farkas (2005) 64 NSWLR 253 TEXTS CITED : Ritchie's Uniform Civil Procedure Aaron Newey (Plaintiff) PARTIES : First Superannuation Ptd trading as First Super Pty Ltd (First defendant) Hanover Life Re of Australasia Ltd (Second defendant) FILE NUMBER(S) : SC 5559/08 COUNSEL : R B Petrie (Plaintiff) D Villa (Defendants) SOLICITORS : Brydens Law Office (Plaintiff) TurksLegal (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Rein J Date of Judgment: 16 October 2009 5559/08 Aaron Newey v First Superannuation Pty Ltd and anor JUDGMENT 1 REIN J: The plaintiff was formerly employed by Emerdyn Pty Ltd ("Emerdyn") and through arrangements made by Emerdyn was entitled to the benefit of a sickness and accident policy issued by Hanover Life Re of Australasia Ltd ("Hanover") to the Furniture Industry and Retirement and Superannuation Trust ("FIRST") of which FIRST Pty Ltd ("FPL") was the Trustee. Emerdyn was a participating employer admitted to the fund. 2 The policy included a lump sum benefit provision of $50,000 for "total and permanent disablement" as defined under the policy. The wording was as follows: "1.3 An Insured Person suffers Total and Permanent Disablement if they: 1.3.1 are unable to do any work as a result of injury or illness for 6 consecutive months and at the end of the 6 months they continue to be so disabled that they are in our opinion unable to resume their previous occupation at any time in the future and will be unable at any time in the future to perform any Other Occupation… " See TB77 (" the TPD definition "). 'Other Occupation' is defined as: "…any occupation the person is qualified to perform by their education, training or experience at the time we assess the claim and includes: · part-time occupations; and · an occupation which may be perceived by the person to be of lower status than the person's previous occupation or an occupation in which the person does not earn as much income as they did in their previous occupation." See TB89. 3 The plaintiff's claim was lodged on 13 March 2008. The claim was paid on 13 August 2009. Proceedings were commenced on 6 November 2008. The hearing was fixed for 3 and 4 September 2009, but when the $50,000 was paid the parties advised the Court that the matter had resolved except for the question of interest and costs. 4 Because the plaintiff seeks interest on the $50,000 the case is not simply a case about costs and the oft-cited observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 are not directly applicable. I sought to encourage the parties to resolve their differences but no agreement was reached. I was informed that the plaintiff's costs are in the order of $25,000 and the defendants' costs are in excess of $30,000. I found this somewhat surprising given that there is not one affidavit on the file and so far as I am aware none have been served. The amount of interest sought by the plaintiff, based upon the contention that the $50,000 should have been paid, is approximately $4,500. 5 The parties wished to put before the Court a bundle of documents from which it was agreed I could determine the dispute that remains. I directed the parties to prepare an agreed bundle of documents and to provide me with written submissions. I gave Mr Petrie, counsel for the plaintiff, and Mr Villa, counsel for the defendants, the opportunity to furnish written submissions in reply, which they both took. All submissions were received on 11 September 2009. 6 Where a condition of a policy is met only when the insurer holds an opinion to that effect, the insurer is obliged to act reasonably in considering and determining that matter: see Edwards v Hunter Valley Co-op Dairy Co Ltd (1992) 7 ANZ Ins Cas 61-113, and see also Hanover Life Re of Australasia Ltd v Sayseng [2005] NSWSCA 214; (2005) 13 ANZ Ins Cas 90-123. 7 Section 57 of the Insurance Contracts Act 1984 (Cth) provides: "57 Interest on claims (1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section. (2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable. (3) The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations. (4) This section applies to the exclusion of any other law that would otherwise apply. (5) In subsection (4): law means: (a) a statutory law of the Commonwealth, a State or a Territory; or (b) a rule of common law or equity." 8 The plaintiff's claim here is that Hanover was liable to pay him at an earlier time than it in fact did. For that to be made out the plaintiff must establish either that Hanover as at that time either in fact held the opinion that the plaintiff met the TPD definition or, if it did not, that it ought, acting reasonably, to have held that opinion. At one point in the submissions the relevant date is asserted to be 8 May 2008 (see paragraph 13 of the plaintiff's submissions) and at another it is said to be as at November 2008 because that is when the statement of claim was lodged (see paragraph 8 of the plaintiff's submissions). 9 I have read the documents in the Tender Bundle (Exhibit A). They reveal that Hanover was, on a number of occasions, seeking further information from or about the plaintiff and/or awaiting developments, and that it indicated on four occasions that it proposed to defer a decision on whether the TPD claim was payable. Mr Villa's submissions provide significant detail in respect of those four occasions. There was a considerable amount of documentation provided to Hanover and included in it is material which, taken alone, supports the contention that the plaintiff did meet the TPD definition: see for example TB158; but there is other material which supports the contrary conclusion. There are four aspects of the correspondence which, it appears, lead Hanover to feel itself unable, until August 2009, to be satisfied that the plaintiff qualified as TPD: (1) Evidence that although the plaintiff suffered his injury to his back in 2004, he had recovered after conservative treatment sufficiently to return to work: see TB105, and see TB111 in which his treating specialist in February 2005 estimated a six week period before the plaintiff could return to work (see also TB124), but subsequently (in September 2006) he suffered a relapse following an incident at work: see TB126. (2) Evidence that surgery on the lower discs could potentially remedy the plaintiff's problems: see for example TB127 (a report from Dr Diwan of 13 December 2007), TB168, and see TB215 (report from Ms Grewal from the Spine Service of 2 February 2009) and TB241. (3) Evidence that the plaintiff had had work experience other than as a welder: see TB149 – 153, TB114, and could work in duties other than as a welder: see TB134 – 135 per Dr Perla. (4) Evidence that the plaintiff required and then underwent hip surgery in September 2008: see TB187. 10 Dr Diwan of the Spine Service and the plaintiff's treating specialist, in his letter of 7 April 2008 (TB158) says that the plaintiff is "a candidate" for TPD and he notes that surgical reconstruction of the spinal column is an option but that he recommends resolution of the hip problem first. He records the plaintiff as having informed him that the insurance company (which I take to be a reference to the workers compensation insurer) has "declined surgical care of his lumber spine". 11 In a confidential medical report completed by Dr Diwan on 11 April 2008 (TB268 – 269) he notes that "surgery requested awaiting approval". Dr Perla's report of 2 April 2008 echoed this: see TB130. 12 By letter of 30 May 2008 the plaintiffs' solicitors advised Hanover that the plaintiff would be undergoing a disc replacement: see TB164. This position changed subsequently, as I shall detail, and I think that 8 May 2008 has been rather selectively chosen on behalf of the plaintiff as the key date. The report of Dr Perla dated 2 April 2008 was only provided to Hanover on 7 May 2008. 13 The report of Dr Perla of 2 April 2008 offers a different perspective to that of Dr Diwan and expresses a view that the plaintiff was fit for sedentary office clerical duties even without surgery. It also reports Dr Shahnawaz's view that the plaintiff was "currently fit for sedentary office clerical duties only at four hours a day, three days a week" which contradicts the medical certificate given by Dr Shahnawaz (who was the plaintiff's general practitioner) on 5 June 2008: see TB166. 14 In response to a letter from Hanover to Dr Diwan on 23 June 2008 (see TB168), the clinical nurse coordinator from the Spine Service, Ms Grewal, responded in answer to a question about surgery: "Awaiting approval before surgery can be booked and a time frame given. Hip to be done first then spine surgery to follow pending needed approvals. Depending on surgery result we aim to assist a return to work 3 – 6 mths after surgery." 15 In August 2008 FPL wrote to the plaintiff's solicitors advising them that the Claims Review Committee of FPL had decided to defer its decision "for a period of six months following the member's surgery which is currently awaiting approval from WorkCover. The insurer will obtain a further report from the member's treating specialist in January 2009." See TB177. The plaintiff's solicitors responded to that letter pointing out that the workers compensation insurer had advised the plaintiff that it would not approve the spine operation – although the hip operation would proceed: see TB180. This is in contrast to the earlier letter of 30 May 2008 in which the plaintiff's solicitors advised that the plaintiff would be undergoing a disc replacement. Even as at 2 February 2009 Ms Grewal, writing on behalf of the Spine Service, wrote to Hanover "Aaron will be unable to return to work until the necessary surgery is approved and performed": see TB220. Subsequently Ms Grewal wrote in terms that indicated that the plaintiff would not "for the foreseeable future" be able to return to his previous occupation as a welder and made reference to the fact that he had only had training as a welder: see TB225 – 226. Subsequently the plaintiff's solicitors wrote and said that even if the workers compensation insurer would approve the spine operation the plaintiff would not undergo the spine operation because of the risk factors: see TB190. 16 The plaintiff did have the hip operation in September 2008 and in February 2009 he had the spine operation as emergency treatment: see TB213. 17 Dr Kishen, an orthopaedic specialist working in the same clinic as Dr Diwan, said as at 14 April 2009: "At this state it would be prudent to defer his work capacity assessment for a few months. I will not be able to predict his post surgery work ability or the timeframe for his return to work at this stage. I strongly encourage him to return to work and he should be able to work as a computer technician or similar desk job. He may not be able to work as a welder. It is preferable that he avoids work that involves constant bending and lifting." See TB241. 18 The plaintiff's solicitors wrote to Hanover indicating that the view that the plaintiff could work as a computer technician was incorrect: see TB255, and also that a vocational assessment summary report of CRS Australia in 2007 (at TB149 – 153) was inaccurate: see TB256. There is other material in the file which contradicts the suggestion that the plaintiff did have any other training (e.g. TB121), but the difficulty is that on the question of whether the plaintiff did or did not have any other training the material presented a rather confusing picture. Although each case must be determined on the precise wording used, if re-training is required in order to make an insured employable this does not mean that the insured does not meet the TPD definition: see for example Dumitrov v SC Johnson & Son Superannuation Pty Ltd [2006] NSWSC 1372, and this is not disputed by the defendants. There was, however, material provided to Hanover which did point to the plaintiff having training and experience other than as a welder. 19 On 29 May 2009 Ms Grewal, writing on behalf of the Spine Service indicated that: "The delay incurred due to his hip difficulties will need to be taken into account with any return to work plans. We discussed this with Aaron today, as he is keen to get back to work as soon as he is deemed physically well enough to do so, and stressed to him that while he is keen to work he needs to expect this delay in return to work time frame. He is to continue with his spinal rehab as per the program, walk each day as he has been doing, and start giving more consideration to the area of work that he would want to be trained in (as welding is now totally unsuitable as a profession for him) Aaron already has some ideas of re-training in an IT field and will discuss this with his case manager in the near future. He will spend a little time researching possibilities for himself from home so that his time with the case manager and return to work team can be optimized when he is allowed to ready to organize a commencement of training. He is for further review in 3 months so as to allow his rehab to progress to a stage whereby return to work training would be viable. He has been given a workcover certificate covering up to his next review in August." See TB326. On 3 August 2009 Ms Grewal wrote: "Mr Newey's progress: Aaron's condition is such that it is almost certain he will not be able return to a welding type vocation and will indeed need retraining in a job such as IT where he will be able to maintain his spinal health and not be subjected to heavy lifting or bending and twisting type movements. Most of this was mentioned at the 3 month mark post surgery as you will note in the accompanying report. (It was hoped that some form of re-training would have been planned or even commenced in the past weeks since that 3 month review appointment). Aaron was instructed at that time to continue with the spinal rehab needed. He is for review again in two weeks for his 6 month post surgical follow-up at which time a further determination as to his abilities for work will be confirmed." See TB325. 20 Following receipt of that later report Hanover agreed to pay the entitlement. 21 The plaintiff's submissions accept as a general proposition that the prospect of surgery preventing the disability from becoming permanent would be a matter to be taken into account. Tower Australia Ltd v Farkas (2005) 64 NSWLR 253, to which the submissions refer in a different context, lends support to this proposition: see [30], [34] and [63]. 22 The plaintiff's submissions place considerable emphasis on the fact that the workers compensation insurer had refused to meet the cost of spine surgery. Whilst the plaintiff told Dr Diwan that was so, there is no letter from the workers compensation insurer to that effect and there is material which very much suggests that surgery on the spine was a distinct possibility – including, of course, the letter of 30 May 2008 from the plaintiff's solicitors to which I have earlier referred. The letters dated 19 November 2009 and 2 February 2009 from the Spine Service at TB274 and TB215, respectively, seem to proceed on the basis that the workers compensation insurer has not indicated a refusal to pay for surgery. 23 There is also the problem that Dr Diwan made it clear that in his view the hip operation should be undertaken before any spine surgery: see TB158, so the attitude of the workers compensation insurer to payment for the spine surgery prior to hip surgery was less significant than it might have been. 24 It was submitted on behalf of the plaintiff that whilst Farkas supports the proposition that Hanover was permitted to take into account the possibility of future treatment (and, inferentially, its consequences), Hanover was not permitted to "defer making a decision awaiting future treatment that might never take place" and that they had a duty as at 8 May 2008 to make a decision on the basis that "at that stage spinal surgery was not anticipated" and that Farkas supports the plaintiff's position. 25 I think it is important to note that Hanover is required to consider the position "at any time in the future" not, for example, "for the foreseeable future" (see TB225) and I have referred to the somewhat contradictory material in relation to whether surgery on the spine was likely to occur or not. I think the plaintiff would have to have been able to point to clearer evidence than is found here to establish that Hanover was required to proceed upon the basis that spine surgery would not take place or was highly unlikely to occur (quite apart from what might be the effect of the hip surgery), so I do not think, as a matter of fact, the plaintiff's contentions are established and I do not think Farkas is of assistance to the plaintiff's case. 26 I do not think it was unreasonable for Hanover to wish to await the outcome of the hip operation and then the spine operation and in relation to the latter, until it was clear that no surgery would be performed, if that was the case. It was clear that the plaintiff was going to have a hip operation and not clear that he would never have a spine operation. Nor was it clear that if he had the hip and spine operations he would not be unable to return to some duties for which he had education, training and experience. 27 So far as relief is sought against FPL the only matter relied on in the submissions is that to which I have referred in [15] above. The pleadings (paragraphs 2, 10, 16 – 19) put the claim more widely. FPL accepted that it is not inappropriate for an insured to join the trustee in such circumstances but objected to the mounting of a case against the trustee with assertions of breach of trust. Generally speaking if an insurer is not in breach of its obligations it is unlikely that the trustee will be in breach of its obligations. If the insurer is in breach the insured will need to establish a breach of the trustee's obligations to it and I think it will generally follow that if the insurer had not formed an opinion reasonably and the trustee has not taken action on behalf of the insured against the insured then the trustee will be in breach of its obligations. In this case, neither FPL nor Hanover ever rejected the plaintiff's claim, but rather deferred their decisions. Unlike Sayseng (supra) this is not a case in which the insurer determined the outcome adverse to the plaintiff without providing him an opportunity to be heard. 28 I should mention that the plaintiff's submissions assert procedural unfairness in that Hanover did not provide to the plaintiff's solicitors copies of all of the material with which they had been provided by the workers compensation insurer (and in particular, the reports of Dr Perla) until after the commencement of proceedings. The defendants' response to the claims of procedural unfairness was to point out that there is no allegation of procedural unfairness in the amended statement of claim and hence the point is not available. The plaintiff's submissions in reply do not answer that contention. In the circumstances I do not think the point is open to the plaintiff but, in any event, to the extent that Dr Perla's report referred to the plaintiff awaiting surgery it was merely repeating what is found elsewhere and to the extent it expressed views as to the plaintiff's fitness for work quite apart from surgery, the letter of 7 July 2008 from Hanover (TB167) seems to place no weight upon it as a factor in its decision to defer determination. 29 I think that November 2008 is a more appropriate date on which to focus in determining whether the defendants should have formed the opinion that the plaintiff met the TPD definition because it is the date when proceedings were commenced and being later in time would grant a longer period to the defendants within which to have formed an opinion, but I shall deal with both dates. The view I have come to is that: (1) the plaintiff has not established that Hanover or FPL was as at 8 May 2008 or November 2008 of the opinion that the plaintiff met the TPD definition; and (2) the plaintiff has not established either as at 8 May 2008 or November 2008 that Hanover or FPL could not have reasonably formed the view on the material available to them that the plaintiff did not meet the TPD definition or that their decision to defer determination of the question of whether the plaintiff met the definition was unreasonable. 30 It follows that the plaintiff is not entitled to interest on the basis of s 57 and no other basis is claimed or available: see NRMA Insurance Ltd v Tatt (1989) 5 ANZ Ins Cas 60-902 at p 75-752 per McHugh JA with whom Hope and Samuels JJA agreed. Neither Sayseng (supra) nor Frith v Host-Plus Pty Ltd [2007] NSWDC 39; (2007) 4 DCLR (NSW) 161 assist the plaintiff because the plaintiff has not established that the claim should have been determined in the plaintiff's favour at an earlier time. 31 The general rule is that the unsuccessful party must pay the costs. I take that general approach into account but I think there is, in this case, a need to divert from what would be the normal result. I drew attention on 2 September 2009 to the possibility that an order capping the costs of the successful party might be made. 32 The conclusion I have come to is that the defendants should be awarded costs of the determination on the papers and court appearances on 28 August 2009, 2 September 2009 and today up to a maximum amount of $5000 but that otherwise each party should bear its own costs. In coming to that view I have taken the following matters into account: (1) The plaintiff contended that he was entitled to the benefit and he has been paid that benefit. (2) Even if the proceedings were premature, the plaintiff's claim had to be considered and determined by the defendants and advice obtained in respect of it. It would seem most unlikely that the $30,000 of costs could relate solely to defending the proceedings. (3) The documents did not present a clear picture. (4) The amount of the claim was quite small. (5) The amount over which the determination on the papers has been concerned (other than each side's assertion that the other should pay the other's costs) was approximately $4,500. (6) The circumstances of the case call for a need for proportionality between the costs and the amount in dispute. (7) But for the claim for interest, the appropriate order would have been that each party pay his or its own costs and I would not have ventured into the material or permitted extensive argument about the result. 33 The defendants seek an order for indemnity costs. Although I am of the view that the commencement of proceedings in November 2008 was not justified I am far from satisfied that the circumstances warrant an order for assessment of costs on an indemnity basis: see Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234 and Ritchie's Uniform Civil Procedure at [42.5.8] where the reasons which might propel a Court to award costs on an indemnity basis are discussed. 34 The orders that I propose to make are therefore that: (1) There be judgment for the defendants. (2) The plaintiff pay the defendants' costs of the determination on the papers and court appearances on 28 August 2009, 2 September 2009 and today on the ordinary basis but to a maximum amount of $5000. ******** 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.