NSW Court of Appeal clarifies the words ‘by education, training or experience’ in a TPD benefit
In a case last year, Hannover Life Re of Australasia Limited v Jones, the NSW Court of Appeal confirmed the existing law that applies when challenging an opinion that the policy allows the insurer to form subjectively. The test the court applies is:
… whether the opinion formed by the insurer was not open to an insurer acting reasonably and fairly in the consideration of the claim.
The Court of Appeal also considered the correct interpretation of the requirement in some Total and Permanent Disability benefits that the insured not only can’t follow his or her usual occupation, but is also unlikely to ever be able to engage in any employment, business or occupation:
… for which the Insured Person is reasonably fitted by education, training or experience.’
Anyone who is familiar with disability or income protection policies will know that this is the narrower of the two covers available. The wider cover omits the second limb and only requires an inability to follow the insured’s own occupation. The fact that the insured may still have an ability to carry on some other occupation doesn’t affect payment of the claim. Adding the second limb narrows the cover – but to what extent?
The insured’s vocational background and medical history were briefly as follows. The insured left school at age 16 and started an apprenticeship with a roofing contractor. He subsequently qualified as a tradesman roof plumber with a number of additional roofing tradesman qualifications. He injured his back in mid-2011. He underwent medical treatment and had to stop working. In 2012, he lodged a claim for a TPD benefit under his superannuation scheme. He underwent surgery on his back, which resulted in some improvement. However, he still had pain in his right calf and he had to walk in a restricted fashion.
Supreme Court of NSW decision
In 2014, his insurer declined his claim. At the heart of the declinature was the application of the ETE Clause. The insurer accepted he was permanently disabled from being a tradesman roof plumber. However, applying the second limb, the insurer considered the following occupations were still reasonably suitable for the insured:
- Retail sales (hardware)
- Courier/delivery driver
- Console operator
- Customer service advisor/telemarketer
The insured commenced court proceedings against the insurer in the Supreme Court of NSW. He was successful. The Supreme Court found the insurer had not acted reasonably and fairly in considering the claim, opening up the insurer’s decision to review. It also found the ETE Clause was satisfied in that none of the above occupations was suitable for the insured and the insurer should meet the claim. The insurer appealed to the Court of Appeal.
Court of Appeal decision
The insurer argued in the Court of Appeal that the Supreme Court had misinterpreted the ETE Clause. The insurer said the ETE Clause wasn’t satisfied because the insured was physically capable of undertaking the four occupations listed above and it didn’t matter that this involved some element of re-education, re-training or new experience beforehand. The wording of the ETE clause anticipates this.
The Court of Appeal saw it differently; it held that the words ‘fitted by’ looked backwards, not forwards. They expressed the notion of a link or connection between the suggested occupation and the past education, training or experience. Therefore, the insurer could only consider the education, training or experience the insured already had when considering occupations that may be still reasonably suited for him. It was not open to the insurer to point to occupations that the insured could do, but only after conducting some further education, training or experience.
This finding is significant.
What does it mean?
While a Court’s job can only be to interpret the words used, the real battle here was over the underwriting intention.
It seems the insurer’s underwriting intention was to pay a claim only if:
a) the insured cannot undertake his or her present occupation, and
b) the insured cannot undertake any other occupation reasonably open to the insured after the insured undertakes further education, training or experience.
However, the Court of Appeal interpreted the words used in the clause more narrowly.
The ETE Clauses in New Zealand policies are usually worded similarly. Although the words ‘fitted by’ are not common, other similar words such as ‘reasonably suited by’ are, and they are likely to lead to the same outcome. In other words, they are likely to be referring to the insured’s existing education, training and experience only.
If Total and Permanent Disability insurers wish the second limb of the test to be narrower than this and to only provide cover if the insured is unable to carry out any occupation after taking on further education, training or experience, clearer words will be required.