Supreme Court New South Wales Medium Neutral Citation: Harrison v Retail Employees Superannuation Pty Limited and Anor [2015] NSWSC 1665 Hearing dates: 23 June 2015 Decision date: 10 November 2015 Jurisdiction: Equity Before: Lindsay J Decision: The plaintiff is entitled to recover a Total and Permanent Disablement (TPD) Benefit under a group policy of insurance issued by the second defendant (as insurer) to the first defendant, as trustee, for the benefit of members of a fund. Catchwords: CONTRACTS - General contractual principles - Construction and interpretation of contracts -Proper construction and application of insurance policy – Construction of the term "total and permanent disablement" - Insurance Contracts Act 1984 (Cth) s 54 INSURANCE - General - Policies of insurance – Group policy insurance - Proper construction of policy – Claim for total and permanent disablement benefit for an insured member SUPERANNUATION - Benefits - Matters affecting entitlement to and payment of – Group policy insurance – Construction of policy – Date of occurrence of totally and permanently disabled Legislation Cited: Insurance Contracts Act 1984 (Cth) ss 14 and 54 Cases Cited: Embleton Motor Co Pty Limited v St Kilda Beach Taxi School and Staffing Pty Limited [2014] WASCA 183 at [46] Gramophone Co Limited v Magazine Holder Co (1911) 28 RPC 221 at 225 Termijtelen v Van Arkel [1974] 1 NSWLR 525 at 527A-B, 529F, 530B-F and 534F-535A Texts Cited: - Category: Principal judgment Parties: Plaintiff: Ronald Harrison First Defendant: Retail Employees Superannuation Pty Limited ABN 62 653 671 394 Second Defendant: The Colonial Mutual Life Assurance Society Limited trading as Comminsure ABN 12 004 021 809 Representation: Counsel: Plaintiff: G Beauchamp First Defendant: M Gollan (Submitting appearance) Second Defendant: P Reynolds Solicitors: Plaintiff: Firths-The Compensation Lawyers First Defendant: AL Edwards (Submitting appearance) Second Defendant: NJ Matkovich File Number(s): 2014/00254178 Judgment INTRODUCTION 1. The plaintiff claims a "Total and Permanent Disablement (TPD) Benefit" against the first defendant, as trustee of the Retail Employees Superannuation Trust ("REST"), and the second defendant, the insurer who issued the policy of insurance (to the first defendant) which governs the payment of such a benefit. 2. Having earlier filed a defence, shortly before the final hearing of the proceedings the first defendant announced that it would submit to the orders of the Court save as to costs. With no objection on the part of the plaintiff or the second defendant, counsel for the first defendant withdrew without active participation in the final hearing. 3. The plaintiff's only, and true, contradictor is the second defendant. By its joinder in the proceedings, the first defendant may be taken to have lent its name to the plaintiff (as a beneficiary of the Trust) to claim a benefit said, by the plaintiff, to be payable under the policy. 4. It is agreed between the plaintiff and the second defendant that nothing in the trust deed, pursuant to which the first defendant obtained, and at all material times maintained, the policy of insurance issued by the second defendant is critical to a determination of the plaintiff's claim. At the highest level of abstraction, the question presented for determination is simply whether the policy answers the plaintiff's claim. PRIMARY FACTS 1. The employment (with Frank Hodgekiss Pty Limited trading as "Puzzles & Games") which entitled the plaintiff to cover under what was a group policy of insurance occupied the period between 1 March 2000 and 6 November 2001. 2. Medical evidence identifies 1 April 2001 as the date upon which the plaintiff became permanently incapable of gainful employment for which he was reasonably qualified by education, training or experience. There is no medical evidence to the contrary. Nevertheless, it is common ground that the plaintiff soldiered on, attending work until, having given due notice to his employer, he finished up on 6 November 2001. 3. It is also common ground that he was absent from employment for six consecutive months (between 6 November 2001 and 6 May 2002) because of sickness or injury, and that he was so disabled at the commencement of that period and, throughout it, that he was unlikely ever to engage in any reasonably suitable occupation. THE NATURE AND AMBIT OF DISPUTE 1. Controversy attaches to the plaintiff's claim because: (a) although he was entitled to automatic cover under the policy issued by the second defendant, in the absence of an application from him for ongoing cover (which application he did not make, because he was not aware that he had to make it), the cover available to him under the policy was available only for a period of 12 months; and (b) there is a dispute between the parties as to whether the cover was available at the time when, upon the proper construction the policy, the plaintiff suffered "total and permanent disablement". 2. The primary focus of the proceedings is upon the proper construction of the policy, and application of it to facts properly characterised, but the plaintiff also relies upon sections 14 and 54 of the Insurance Contracts Act 1984 (Cth) in the event that his claim is not otherwise upheld. 3. His reliance upon section 54(1) is grounded upon the facts that: (a) the policy issued by the second defendant was a group policy and, as such, at all material times current; (b) the "act (or omission) of the insured or some other person" that occurred, after the issue of the policy, that engaged the operation of section 54 was, he contends, the failure of the first defendant to procure from him an application for ongoing cover for submission to the second defendant; and (c) because the policy was a group policy, and ongoing, the second defendant could not be said to have suffered at any prejudice. 4. The plaintiff's invocation of section 14 involves no more than a reformulation of the same argument. He contends that the second defendant's refusal to pay him the claimed TPD benefit, notwithstanding section 54, constitutes a failure on the part of the second defendant to act in the utmost good faith, sufficient to engage section 14(1). 5. The second defendant maintains that because the policy is an occurrence (event) based policy, an inherent restriction of which is that a claimant must identify an insured event occurring within the policy period, neither section provides any assistance to the plaintiff. His claim, the second defendant maintains, depends entirely upon whether he can establish that he became "TPD" during the period he was covered as a "deemed member" of "the fund" defined as the Retail Employees Superannuation Trust. THE POLICY, ANALYSIS AND ASSOCIATED RULINGS 1. The Insurer's Promise. Clause 1.2 of the policy records a promise made by the second defendant to the first defendant (as trustee for the plaintiff) in the following terms: "If we [the second defendant] agreed with you [the first defendant] to provide [TPD benefit cover] for an insured member under Chapter 2, we will pay a benefit [quantified in an "Insurance Cover Scale" set out on page 23 of the policy] on his or her total and permanent disablement." 1. Start of Cover. The parties are agreed that clause 2.2(e) governs the date upon which the cover available to the plaintiff commenced. 2. So far as material, clause 2.2(e) provides that "[if]… automatic acceptance applies to cover for the person [which the plaintiff and the second defendant agree is the case for the cover available to the plaintiff], that insured cover for the member [the plaintiff] will start on… the date the member commenced employment with the employer making the first mandatory employer contribution for the member's latest period of employment… ". 3. The parties are at issue here on the proper construction of the expression "the date the member commenced employment with the employer making the first mandatory employer contribution". 4. The second defendant contends that that expression, read as a whole, signifies the date of commencement of employment as the critical date, the reference to the making of the first mandatory employer contribution being no more than a means of identifying the employer. The plaintiff contends that the critical date is not the date of commencement of employment but the date upon which the first mandatory employer contribution was made. 5. On the second defendant's case, the cover started on or about 1 March 2000 (when the plaintiff says his employment commenced) or, perhaps (having regard to other provisions of the policy) 17 March 2000, a date taken from a record entitled "Member Account Summary" maintained by the first defendant as the date upon which the plaintiff joined the fund. That same record evidences the employer's first mandatory contribution as having been made on 5 June 2000, a date corroborated by other business records. 6. I accept that evidence as evidence of the fact, notwithstanding that (in a letter dated 12 September 2011 addressed by the second defendant to the first defendant declining the plaintiff's claim) the second defendant made statements (relied upon by the plaintiff in these proceedings as admissions) to the effect that: 1. the cover for the first defendant, vis-á-vis the plaintiff, commenced on 19 June 2000 when the plaintiff joined the fund; and 2. the first mandatory employer contribution referable to the plaintiff was received in "December 2000". 1. In the absence of a compelling reason to hold the second defendant to any admission thus made, evidence of the true facts should be preferred. The Court is not bound to act on an admission contrary to evidence properly before it: Termijtelen v Van Arkel [1974] 1 NSWLR 525 at 527A-B, 529F, 530B-F and 534F-535A; Embleton Motor Co Pty Limited v St Kilda Beach Taxi School and Staffing Pty Limited [2014] WASCA 183 at [46]; Gramophone Co Limited v Magazine Holder Co (1911) 28 RPC 221 at 225. 2. Definition of "Insured Member". The policy defines an "insured member" as "a person who, at the relevant time, is a member of the fund and who has been accepted by us [the second defendant] for insured cover under this policy and whose cover has not ceased". The definition also expressly includes "deemed members". 3. It is common ground that, subject to debate about the operation of section 54 of the Insurance Contracts Act 1984 Cth, the plaintiff's status as an "insured member" is coextensive with, and only with, the period during which he was a "deemed member". 4. Definition of "Deemed Member". The parties are at issue on the operation of the definition of "deemed member" in the policy. That definition reads as follows (with emphasis added in bold): "Unless agreed otherwise between you [the first defendant] and us [the second defendant] in writing, a person who became a member of the fund after 31 July 1994 [as, it is agreed, did the plaintiff] and for whom an application has not been received by the fund for that membership [as is agreed to be the case in respect of the plaintiff] and who has been set up on your systems as a deemed member. Once an application has been received for that membership, the member ceases to be a deemed member and: (a) if that application has an election for insured cover under this policy, or insured cover applies by default, the person continues to be an insured member; or (b) if that application requests nil insured cover under this policy, the member ceases to be an insured member and a deemed member". 1. The critical date for this definition is 17 March 2000, the date in the first defendant's "member account summary record" as the date the plaintiff "joined" the Retail Employees Superannuation Trust Plan as a member. 2. I accept, as the second defendant submits, that the plaintiff became a "deemed member" of the fund on 17 March 2000, upon which date he had been "set up" on the first defendant's "systems" as a deemed member. 3. End of Cover. Incidentally, by reference to the definition of "insured member", the second defendant contends that the plaintiff's cover ceased on 5 June 2001, 12 months after the date upon which the first defendant received the "first mandatory employer contribution" from the plaintiff's employer. 4. That contention flows from the operation of clause 2.16(k) of the policy which, materially, is in the following terms: "Insured cover for an insured member will end at… for a deemed member, the date 12 months after you [the first defendant] receive the first mandatory employer contribution for that insured member, if you [the first defendant] have not within that 12 months received an application, in which case the amount of insured cover defaults to zero units of cover from that date…". 1. On the findings I have made as to the timing of payment of the "the first mandatory employer contribution", the second defendant's contention must be accepted. The cover provided for the plaintiff ceased on 5 June 2001: 12 months after 5 June 2000, not 12 months after December 2000. 2. Payment of premium not contested. By its written submissions dated 15 June 2015 (paragraph 11), the second defendant formally recorded the following statement (edited to include explanatory notes): "On 5 June 2000 the Employer [Frank Hodgekiss Pty Limited trading as 'Puzzles and Games'] made the first mandatory employer contribution to REST [the fund] for the plaintiff. There is no dispute that the Employer continued to make superannuation contributions to REST for the plaintiff over the course of his employment." 3. The plaintiff's employment, the parties agree, came to an end on 6 November 2001. 4. On the case for which the second defendant contends, the plaintiff's Employer made contributions to the fund for him notwithstanding that his entitlement to cover ceased on 5 June 2001, roughly 5 months before his employment ended. 5. This fact cannot influence the proper construction of the policy, but it may be taken into account in the context of an application of the Insurance Contracts Act 1984, section 54(1). The second defendant cannot be said, and is not said, to have suffered material prejudice as a result of the absence of an "application" from the plaintiff. 6. Definition of "Application". The term "application" is defined by the policy as "an application for membership of the fund on a form issued by you [the first defendant] offering an insurance election current at the time of receipt of the application by you [the first defendant]." 7. It is common ground that the first defendant never received an "application" from the plaintiff. 8. I accept the plaintiff's evidence (not contested by the second defendant) that: 1. at no stage during his employment with the Employer (Frank Hodgekiss Pty Limited trading as " Puzzles and Games") did the first defendant or the Employer communicate to him any instructions, application forms or requirements relating to REST insurance; 2. at no stage before lodgement of his TPD claim (in November 2010) was he ever provided with an application for membership of REST; and 3. if he had known that he had to apply to REST to be entitled to insurance benefits, he would have applied. 1. I am satisfied that, given an opportunity to make an "application" and so, to cease to be a "deemed member" and to become fully an "insured member" (in accordance with sub-paragraph (a) of the definition of "deemed member" in the policy) the plaintiff would have taken that opportunity, and the policy would not have operated against him (as provided for in clause 2.16 (k) of, and as contemplated in the definition of "insured member" in, the policy). 2. I also accept evidence, adduced by the second defendant, that the first defendant had the means of knowing, and ought to have known, at all material times that, as a "deemed member" of the fund the plaintiff's cover would cease 12 months after the first defendant received the "first mandatory employer contribution" from the plaintiff's employer. 3. These findings bear, not on the proper construction of the policy, but upon the operation of the Insurance Contracts Act, section 54(1). 4. The Insured Event. The policy's definition of "total and permanent disablement (TPD)", which is incorporated by reference in clause 1.2 as the event upon which a benefit is payable under the policy, is in the following terms, so far as material: "disablement where we [the second defendant] are satisfied on medical or other evidence that an insured member : (a) (i) has been absent from employment for 6 consecutive months because of sickness or injury; and (ii) is so disabled at the start of those 6 months and continuously since that time that the insured member is unlikely to ever engage in any reasonably suitable occupation…". 1. The parties are agreed that the plaintiff's absence from employment (the start of the six month period) commenced on or about 6 November 2001, and that the six month period concluded on or about 6 May 2002. 2. The plaintiff contends that he became totally and permanently disabled in the sense that he was unlikely ever to return to any form of work for which he was suited on 1 April 2001 (as the medical evidence suggests) and that, having attained that level, the only substantive impediment to his entitlement to a TPD benefit was that he could not apply for a TPD benefit until he had been off work for six consecutive months. 3. The second defendant contends that a member cannot be said to have suffered "total and permanent disablement" unless and until, because of sickness or injury to the requisite degree, he or she "has been absent from employment (for six consecutive months)". Its primary case is that the earliest date upon which the plaintiff could be said to have met the policy definition of TPD is 6 May 2002, upon the expiry of six months after his last day at work. A secondary case may be inferred from its acceptance that one of the dates by reference to which any entitlement the plaintiff might have to insurance cover is 6 November 2001, the last day of his employment. That date, if selected, is consistent with its primary contention that no insurance "event" (TPD) occurred before the plaintiff's cover ceased on 5 June 2001. 4. The second defendant contends that the medical evidence attributing incapacity to the plaintiff as early as 1 April 2001 simply provides an evidentiary foundation for it to be "satisfied" that the plaintiff was absent from work "because of sickness or injury" and that he was "unlikely" to ever engage in any reasonably suitable occupation. 5. The proper construction of the term "total and permanent disablement" as defined by the policy presents a conundrum because, viewed in isolation, the definition of the term intertwines substantive and adjectival (administrative and evidentiary) terminology. 6. The core focus is found, at the outset of the definition, in the word "disablement", a substantive concept that invites the question, "Disabled from what?" 7. An answer to that question is found, at the end of the definition, in reference to engagement "in any reasonably suitable occupation", qualified by the word "unlikely". 8. The definition requires not simply "disablement" from (a form of incapacity for) "any reasonably suitable occupation", but disablement "because of sickness or injury". 9. To this point the definition can be elaborated in substantive terms. 10. Beyond this point, and arguably separating the substantive elements of the definition, are qualifications capable of characterisation as merely administrative or evidentiary requirements: 1. a requirement that the second defendant be "satisfied on medical or other evidence"; and 2. a definition of that requirement tied to: 1. a purposive absence from employment for six consecutive months: and 2. a disablement through that period. 1. Viewing the definition of TPD in isolation, there appear to be four potential perspectives of the time at which "disablement" can be said to have occurred for the purpose of the policy. 2. First, at the time that, medically, an insured member becomes disabled, because of sickness or injury, from being likely ever to engage in any reasonably suitable occupation. On the uncontested medical evidence in this case that time, for the plaintiff, was1 April 2001. 3. Secondly, at the time that the insured member's disablement manifested itself in an absence from employment that could, ultimately, be seen as the commencement of a continuous period of six months absence from employment. That time, in this case, is agreed to have been 6 November 2001 or thereabouts. 4. Thirdly, at the end of the six month period of absence from employment - agreed, in this case, to have been 6 May 2002 or thereabouts. 5. Fourthly, at the time that the second defendant was "satisfied", or ought to have been "satisfied", that the insured member has been absent from employment for six consecutive months (because of sickness or injury) and is so disabled throughout that time that he or she is unlikely ever to engage in any reasonably suitable occupation. 6. No party has contended for this last possibility, or proposed a time for its application to the facts of the case. The second defendant has, correctly, adverted to the need to respect the significance of the requirement that it be "satisfied" of a particular state of affairs; but debate has quickly moved on to underlying, primary facts not the subject of ongoing dispute. 7. The second defendant's primary case is focussed on the third of the four possibilities, a defect of which (noted by the plaintiff) is that, by its very nature, any "event" defined by the time frame it embraces (namely, the end of a six months absence from employment) will be likely, in some if not all cases, to have occurred outside an insured member's period of employment and therefore, quite possibly, outside the period of any available insurance cover. 8. That possibility, read with the purpose of the definition, in the context of clause 1.2 of the policy, as provision of an identifiable insured "event" would, in some if not all cases, render the definition self-defeating. On the second defendant's case, an "event" might routinely occur only outside a period of cover. 9. That possibility is consistent with the provisions of clause 2.16 entitled "End of Cover". 10. As has been noted, the parties are agreed that, in the current proceedings, the applicable provision of clause 2.16 is clause 2.16( k) . 11. However, the parties' argument requires that notice be taken of clause 2.16(h) so far as it is material: "Insured cover for an insured member will end at … the Friday immediately after the 62nd day after the insured member was last at work. For the purpose of condition 2.16(h), at work includes being on fully paid leave caused by sickness or injury. However, if an "insured member" is on employer approved unpaid leave other than leave caused by sickness or injury, insured cover will continue for the period of that leave up to 12 months, as long as: (i) you [the first defendant] receive prior written notice of the period of this leave; and (ii) at this time there is and continues to be sufficient funds in the insured member's fund account to cover premiums for the full period of leave." 1. This provision is consistent with the possibility that, on the second defendant's construction of clause 1.2 (incorporating the definition of "total and permanent disablement" in the clause) the "event" relied upon to ground a claim to a TPD benefit (total and permanent disablement) would occur only after the end of insured cover and, accordingly, not give rise to any entitlement to a benefit. 2. When one has regard to the purpose of the policy (provision of insurance), and the purpose of the definition (identification of an insured event), the choice to be made, in construction of the definition of "total and permanent disablement", is between the first two time perspectives. 3. In my opinion, the first time perspective (that which favours the date 1 April 2001) is to be preferred. The requirement for a six months absence from employment is essentially an adjectival (administrative or evidentiary) requirement, not one that controls the meaning of the substantive concept of "disablement". The grant of insurance cover by reference to "disablement" cannot be derogated from by machinery provisions directed towards an assessment whether or not there has been "disablement". 4. In substance, incorporating the first of the four time perspectives in clause 1.2, the clause may be read as being to the following effect: "If we [the second defendant] agreed with you [the first defendant] to provide [TPD benefit cover] for an insured member under Chapter 2, we will pay a benefit [quantified in an 'Insurance Cover Scale' set out on page 23 of the policy] on his or her becoming disabled, because of sickness or injury, from being likely ever to engage in any reasonably suitable occupation, provided that we are satisfied on medical or other evidence that [the] 'insured member': (i) has been absent from employment for six consecutive months because of sickness or injury; and (ii) is so disabled at the start of those six months and continuously since that time that the 'insured member' is unlikely to ever engage in any reasonably suitable occupation." 1. The parties are agreed that a finding that the plaintiff became totally and permanently disabled on 1 April 2001 carries with it a finding that he is entitled to recover a benefit of $43,000. 2. They are also agreed that, had disablement be found to have occurred on 6 November 2001, the amount of the benefit would have been $41,100. 3. My finding that 1 April 2001 is the relevant date obviates any necessity to consider section 14 or, more particularly, section 54(1) of the Insurance Contracts Act. Nevertheless, against the possibility of an appeal, the operation of those statutory provisions is a topic to which I now turn. 4. Section 14(1) is to the effect that "[if] reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision". 5. Because the plaintiff's case on section 14 is simply a reformulation of the case he seeks to make by reference to section 54(1) a reference to section 14 adds nothing of substance to a proper determination of the case. 6. So far as material section 54 is in the following terms (with emphasis added): "Insurer may not refuse to pay claims in certain circumstances (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or some other person, being an act that occurred after the contract was entered into…, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of a claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act…. (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter." 1. In my opinion, if (contrary to my finding) the plaintiff became TPD on or about 6 November 2001 (in circumstances in which, for want of an "application", the plaintiff's cover ceased on 5 June 2001) section 54 would operate to preclude the defendant from refusing to pay the plaintiff's claim by reason only of the want of an "application". 2. That is because: 1. section 54(1) is to be given a broad, beneficial construction designed to give effect to its remedial purpose: Commercial Union Insurance Company of Australia Limited v Ferrcom Pty Limited (1991) 22 NSWLR 389 at 391D; Maxwell v Highway Hauliers Pty Limited (2014) 252 CLR 590 at 591 [19]-[20]. 2. section 54 does not postulate a liability of the insurer to pay a claim which has been made but, rather, a claim and a contract the effect of which is that the insurer may refuse to pay the claim, directing attention to the reason founding the refusal: Antico v Health Fielding Australia Pty Limited (1997) 188 CLR 652 at 669; Maxwell v Highway Hauliers Pty Limited (2014) 252 CLR 590 at 597 [21]. 3. the act or omission which engages section 54 may be a failure to exercise a right, choice or liberty which an insured enjoys under the contract of insurance: Antico v Health Fielding Australia Pty Limited (1997) 188 CLR 652 at 669-670. 4. to the extent that the plaintiff's claim might be said to have been based on an event (TPD) that occurred outside "the period of cover" provided for the plaintiff under the policy, any restriction or limitation on the plaintiff's entitlement to claim a TPD benefit was not inherent in the claim (FAI General Insurance Co Limited v Australian Hospital Care Pty Limited (2001) 204 CLR 641 at 659 [40]-[42]; Maxwell v Highway Hauliers Pty Limited (2014) 252 CLR 590 at 598 [23] and 599 [25]-[27]) but arose by reason of an omission on the part of the plaintiff to make, and an omission on the part of the first defendant to obtain from the plaintiff, an application to become a full "insured member", which omissions occurred after the policy had been entered into and while it remained operative. 5. this case is distinguishable from another form of occurrence based policy in respect of which: 1. a claim is made in relation to an event which occurred outside a period of cover fixed at the time the policy was issued, involving no act or omission which, occurring after issue of the policy, affected the period of cover; and 2. the policy had expired by effluxion of time, according to its terms, without any act or omission post-dating entry into the policy. 1. the second defendant's interests were not prejudiced as a result of the omissions associated with the absence of an "application" relating to the plaintiff because the policy was an on-going group policy, and, in any event, it received premiums referable to cover for the plaintiff throughout the plaintiff's employment. CONCLUSION 1. Accordingly, I find that the plaintiff is entitled to recover a TPD benefit of $43,000. 2. Before making final orders I will allow the parties (including the first defendant) an opportunity to make submissions about the form of relief to be granted, including any consequential orders (eg, in relation to interest and costs) that may be appropriate. ********** 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. Decision last updated: 10 November 2015