IN BRIEF - INSURER SUCCESSFULLY APPEALS TPD BENEFIT JUDGEMENT
In MLC Nominees Pty Ltd v Daffy [2017] VSCA 110, the Victorian Court of Appeal has confirmed that courts will apply a "businesslike" interpretation to policies of insurance. The decision is significant because it illustrates some of the complex issues which may arise where a person's employment has been terminated. It is also a reminder that insurance policies, including their defined terms, should be clearly drafted.
CESSATION OF LIABILITY CLAUSE AND "ACCRUED" POLICY WORDING SCRUTINISED BY COURT OF APPEAL
The Court of Appeal undertook a detailed analysis of the policy wording in question. Ultimately, the key issues for determination were:
- the meaning to be given to a "cessation of liability" clause contained in the policy, and
- whether the total and permanent disability (TPD) benefit had "accrued" at the date of injury, and prior to a termination of employment
At first instance, Daffy received judgment for a TPD benefit of $1,521,071.64, plus interest of $344,568.02. MLC Nominees Pty Ltd and MLC Limited (collectively, MLC) appealed, and the decision of the trial judge was overturned.
Justices Beach, McLeish and Keogh gave a unanimous joint judgment for MLC on 15 May 2017.
INSURED'S INCOME PROTECTION CLAIM ACCEPTED BUT TPD CLAIM REJECTED BY MLC
Mr Daffy was general manager and a fifty per cent shareholder of Southern Star Designer Window Pty Ltd (SSDW).
On 14 October 2010, whilst lifting a large sliding door, Mr Daffy suffered a prolapsed disc at the L5/S1 level. He was hospitalised for four days and then absent from work for approximately four weeks. Mr Daffy returned to work, but his work was significantly restricted in the range of duties he could perform and the number of hours he worked. He experienced varying degrees of pain and was consuming large quantities of over-the-counter painkillers.
Mr Daffy's last day at work was 20 May 2011. On 24 May 2011, Mr Daffy's employment was terminated, for reasons unrelated to his injury or performance as general manager. After this time, Mr Daffy did not engage in any employment. At trial, MLC conceded that for a period of six months commencing in late July 2011, Mr Daffy would have been unable to attend work solely through injury.
Mr Daffy claimed an entitlement to a total and permanent disability benefit, and income protection payments, under a MLC policy which had been arranged through his superannuation. The policy holder was MLC Nominees Pty Ltd and the insurer MLC Limited. It was accepted that SSDW was a Participating Employer under the MLC policy.
Mr Daffy's claim for income protection, made in September 2011, was accepted by MLC. On 29 May 2012, Mr Daffy made a TPD claim under the policy. The claim was rejected by MLC on the basis that Mr Daffy did not meet the definition of TPD contained in the Sixth Schedule of the policy, as MLC was not satisfied that Mr Daffy had suffered a total irreversible inability to perform at least two of the "Activities of Daily Living" as defined in the Sixth Schedule of the policy.
CESSATION OF EMPLOYMENT AND THE CESSATION OF LIABILITY CLAUSE IN INSURED'S POLICY
Clause 27.1 of the policy provided:
PRINCIPLES OF INTERPRETATION OF INSURANCE POLICIES
The Court of Appeal held (at [66]):
The trial judge at first instance held that Mr Daffy's right to make a TPD claim and have it determined in accordance with the First Schedule was a benefit which had accrued before his employment was terminated. The Court of Appeal did not agree that clause 27.1 could be read so as to encompass the "benefit" of being able to make a claim. It considered this would do unacceptable violence to the language of clause 27.1.
"ACCRUED" BENEFIT AND DEFINITION OF TOTAL AND PERMANENT DISABILITY
The Court of Appeal held the TPD benefit had not accrued at the time of Mr Daffy's injury or by 24 May 2011. Mr Daffy had not been absent from his occupation for six months, as required by the TPD definition in the First and Sixth Schedules.
Mr Daffy contended that to accept a construction other than that posited by him would lead to potential results which were so unjust as to suggest an error in the reasoning that led to them. The alleged injustice arose from the more onerous definition of TPD which would apply in the First Schedule (if the relevant benefit had accrued) and the Sixth Schedule (if there was no accrued benefit).
However, the Court of Appeal held (at [82]) that:
Pursuant to the policy, MLC could exercise a discretion to pay an insured before the end of six consecutive months' absence. This, however, did not mean that in the absence of the exercise of the discretion that a TPD benefit accrued before the definition of TPD had been satisfied.
INSURERS SHOULD ENSURE THAT POLICIES ARE DRAFTED CLEARLY
Depending upon the policy wording, termination of employment can have significant consequences for a person's entitlement to TPD benefits.
Insurers can be reassured that Courts will apply a businesslike interpretation to their wordings, and uphold the contract between the parties, in accordance with the longstanding principles set out in earlier decisions such as McCann. However, they ought to give careful consideration to ensuring that their policy drafting is as clear as possible, including in relation to defined terms within the policy.
Carolyn WaitInsurance and reinsurance
Colin Biggers & Paisley
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.