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Court Confirms 6 Months is the Time for Assessing TPD By Alph Edwards | June 2008 Area of Expertise | Financial Services

Summary In Mabbett v Watson Wyatt Superannuation & Anor the NSW Supreme Court has confirmed that the correct date for assessing the likelihood of a return to employment under a standard Total and Permanent Disability (TPD) definition is 6 months after the insured ceased work due to the relevant condition.

Who Does This Impact? Claims teams of life insurers and superannuation trustees

What Action Should Be Taken? Ensure that group life claims teams are aware of the correct date on which to assess TPD.

Introduction In Mabbett v Watson Wyatt Superannuation & Anor1 the NSW Supreme Court has confirmed that the correct date for assessing the likelihood of a return to employment under a standard Total and Permanent Disability (TPD) definition is 6 months after the insured ceased work due to the relevant condition. The Court has also found that the illness or injury does not have to be the sole cause of the initial 6 months absence from work. Rather, it only needs to be a cause.

The Facts The plaintiff injured his back at work on 9 July 2001 being the day on which he tendered his resignation to his then employer, P&O. It was the plaintiff’s intention to start his new job the following day with Associate Building and Construction Services (ABC). The back injury occurred between the plaintiff handing in his resignation and actually finishing his shift. The injury allegedly delayed the plaintiff’s start at ABC but he did eventually commence work for them in November 2001 and continued in this employment until May 2002. The plaintiff also worked part time as a bus driver between July and September 2003 and in more recent years, had been involved in helping to run an organic produce shop and “political activities” but had only received the promise of future payment rather than regular remuneration. The plaintiff lodged a TPD claim on the trustee of his superannuation fund in March 2004 and it was sent to the fund’s group life insurer one month later. The insurer declined the claim in June 2004. The plaintiff sought a review of the decision in September 2006 but it was again declined by the insurer in November 2006.

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Proceedings were commenced by the plaintiff seeking that the matter be remitted back to the insurer for it to form its decision again or alternatively that the Court determine for itself whether the plaintiff qualified for the TPD benefit.

The Policy The trust deed provided that the relevant definition for TPD was that appearing in the insurance policy. The policy provided that TPD occurred if, while the insured person was insured under the policy and engaged in Regular Remunerative Work, the insured person suffered; •

an illness or injury; and

the illness or injury causes the Insured Person to be absent from employment with the Employer for at least 6 months in a row; and

in our opinion, the illness or injury means that the Insured person is unlikely ever to work in or attend to … any Regular Remunerative Work for which they are reasonably fitted by education, training or experience.

When the claim was originally declined by the insurer it did so on two grounds, being that the plaintiff had not been absent for 6 months in a row from employment and that he was not unlikely to return to regular remunerative employment. When the insurer made its second decision to reject the claim, it confirmed the first ground but made no reference to the second ground.

Was it ‘the employment’ or ‘any any employment’? The plaintiff argued that the insurer had misinterpreted the policy with respect to the first ground of dismissal as it had taken “the Employer” to mean “any employer”. It was accepted that the plaintiff did not work for P&O (or any related entity) for 6 months after 9 July 2001, but he did work for ABC during this period. The insurer argued that “the Employer” should be interpreted to mean “any employer”. Justice Einstein rejected this argument as it was plainly contrary to the express language of the clause and clear primacy must be given to the actual words used in a written contract. Having come to the view that “the Employer” was restricted to P&O, his Honour found that the first ground in the initial decline and the only ground cited in the second decline were based on a misconstruction of the contract. Nonetheless, for the matter to go any further it was necessary for this misconstruction to have had a material effect on the outcome of the insurer’s decision.

The Cause of the Absence from Work The insurer submitted that the plaintiff’s resignation from P&O was the proximate cause of his absence from employment with P&O, not the injury.

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Again, his Honour rejected this argument. He found that the injury or illness need not be the sole cause of the plaintiff’s absence from employment with P&O, rather it must simply be a cause. This test was satisfied in the present case if the plaintiff could show that his injury prevented him from being employed by P&O for 6 months after 9 July 2001. Having reached this finding, his Honour found that the plaintiff could not show that the injury was a cause of the initial 6 months absence from P&O. The plaintiff’s claim failed at this point.

The Likelihood of Future Employment Notwithstanding this finding that the plaintiff did not satisfy the first limb of the definition, being a 6 months absence from employment with P&O due to an illness or injury, his Honour went on to consider the second limb of the definition, being the assessment of the likelihood of future employment. In this regard his Honour held that the date for assessing the likelihood of a return to employment under the clause was 6 months after the date of injury, being 9 or 10 January 2002. The plaintiff was also unsuccessful with respect to the second limb. Specifically, his Honour held that the insurer was justified in forming the opinion as at January 2002 that the plaintiff was not unlikely ever to attend any Regular Remunerative Work for which he was reasonably fitted by education training or experience. He also noted that the Court would have arrived at the same view in any event. It was not surprising that his Honour came to this view bearing in mind that the plaintiff’s credit was significantly impeached to the extent that his evidence could not be regarded as reliable unless corroborated. The specific evidence which led his Honour to his findings on both limbs of the definition included: •

An assessment by the plaintiff's treating general practitioner in November 2001, being notably near the relevant January 2002 assessment date, that the plaintiff was fit for usual hours of work and could lift up to 10kg.

Later evidence in 2003 which showed that the plaintiff’s lifting capacity had improved.

The most recent workplace assessment of December 2007 which found that the plaintiff was capable of performing remunerative work including jobs for which no training was required and which were available.

The fact that the plaintiff did obtain full time work with ABC from November 2001 to May 2002 which also required significant travel and also that he was currently performing work activities with a political/community enterprise.

The medical evidence relied upon by the plaintiff either contained errors, was contradictory on key issues or took into account subsequent medical conditions which had to be excluded when assessing future capacity as at January 2002.

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The Judgment As a result of the Court’s findings, the claim failed and the proceedings were dismissed.

Implications One of the most troubling issues currently facing group life claim teams is the date on which the future likelihood for work should be assessed under a standard TDP definition. This controversy arises from the fact that different outcomes can often result depending on the date that is chosen. The controversy has been heightened by two recent conflicting judgments. Halloran v Harwood Nominees2 suggested that the correct date for assessing the likelihood of a future return to work was 6 months after leaving work due to injury or illness. On the other hand, Auspine Staff Superannuation v Henderson3, which dealt with a similar TPD definition, suggested that the correct date was the date when the insurer came to assess the claim. This present decision of Mabbett supports the view of Brereton J in Halloran. Still the reasoning of Einstein J shows some significant departure from that of Brereton J with Einstein J seemingly taking into consideration matters which Brereton J said could not be taken into account when assessing likely future work capacity, namely a subsequent improvement in capacity after the relevant date. To this extent, Halloran and Mabbett stand in significant conflict. It should also be noted that having found that the correct date for assessing the future likelihood of a return to work was 6 months after ceasing work, Einstein J also seemingly took into account assessments of work capacity and actual work performed, well after this date. One may question the overarching logic of doing this particularly in light of Tower Australia v Farkas4. In Farkas the issue to be determined was the likelihood of the insured living beyond 12 months as at the date of diagnosis/ occurrence of a serious disease. The Court of Appeal rejected the notion that subsequent evidence that the insured did or did not survive for 12 months was relevant as it “casts no relevant light on the prognostic matter”. Further, for “the Court to have regard to facts which could not be known at the contractually agreed date for assessment would effectively deny the bargain struck between the parties”. In summary, Mabbett supports the view that the relevant date for assessing the future likelihood of a return to work under the standard TPD definition is after a 6 months absence from employment, due to injury or illness. Be that as it may, it would seem that there is still confusion as to how evidence of capacity for work, subsequent to this 6 month date, should be dealt with. Einstein J seemingly took it into account, Brereton J said it could not be taken into account, whilst Hamilton J in Oberlechner v Watson Wyatt Superannuation5, noted that the issue was not without controversy and perhaps wisely, choose not to express a view. It seems we may have to wait for appellate authority for guidance on this point. The other important aspect to emerge from this case is the finding with respect to the cause of the initial 6 months absence from work. The judgment confirms that it is enough that the illness or injury is a cause of the absence, not the only cause. This is an

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important point to remember as the formal reason for a TPD claimant leaving employment is often noted in reports from an Employer as resignation or redundancy rather than the underlying injury. Finally the decision is reminder that the standard TPD clause assigns the “contractual mechanism for fact finding and decision making” to the insurer “and that the court will not interfere with such a decision unless it is persuaded that the insurer has made an error” error”. This decision demonstrates that disputed TPD claims are much easier to defend when the insurer gets it right in the first instance and the court does not assume the role of deciding TPD.

Endnotes 1

[2008] NSWSC 365

2

[2007] NSWSC 913

3

[2006] FCA 1281

4

(2005) 64 NSWLR 253

5

[2007] NSWSC 906

For more information, please contact: Alph Edwards Partner T: 02 8257 5703 alph.edwards@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Business & Property | Commercial Disputes | Insurance & Financial Services | Workers Compensation | Workplace Relations

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Court Confirms 6 Months is the Time for Assessing TPD