The member had four units of default Total and Permanent Disablement (TPD) insurance and in March 2010 he applied for six additional units of underwritten cover. To obtain the cover he was required to answer a number of questions for the insurer. He answered each question ‘no’, including one which enquired if he had lost the sight of an eye.
By April 2015 the member was legally blind with a medical condition known as Stargardt’s Disease which was confirmed by DNA testing later in the year. The condition involves progressive retinal degeneration. The member had first noticed something was ‘not quite right’ with his eyesight in 2009 when he went and had his eyes tested at a city optometrist whereupon it was suggested he see a specialist. He had some distortion in his eyesight but not loss of vision.
The insurer denied the claim on two grounds. First, the member was not TPD under the policy terms and, secondly, in relation to the underwritten cover, due to fraudulent misrepresentation and/or non-disclosure under the Insurance Contracts Act 1984 (ICA).
The trustee formed the view the insurer should pay and the complaint was referred to the fund’s Claim’s Review Committee (an external review process). That committee concluded the member did satisfy the TPD definition and they recommended the default four units of cover be paid. That part of the claim had been paid by the insurer before the Tribunal hearing which resulted in a narrower question being decided by the Tribunal, namely, whether there had been non-disclosure under the ICA entitling the insurer to not pay out on the additional six units of underwritten cover.
The insurer argued that the member’s response to the loss of eyesight question was incorrect and, therefore, a misrepresentation or, alternatively, the member did not comply with his duty of disclosure by failing to inform the insurer that he had been diagnosed with a serious eye condition, or that he had already consulted a specialist in relation to that condition.
Now the question actually used the words – ‘lost the sight of an eye’, but the insurer argued that the question was really directed towards whether there had been a diminution of eyesight. It was not a question meant to be read narrowly as if only asking whether the applicant was legally blind.
The Tribunal referred to the dictionary definition of ‘lost’ and noted that the Oxford English Dictionary said something was ‘lost’ if it was ‘perished’ or ‘destroyed’. In the Macquarie Concise Dictionary the word lost was defined as ‘no longer possessed or retained’. Given these meanings of the word lost, the Tribunal was of the view that if the insurer meant the question around lost eyesight to have been interpreted as ‘loss, not limited to complete loss of vision’ it should have crafted the question in that way. There was also no catch-all question or other opportunity for the member to expand on the presence or otherwise of any significant eye condition. Further, the member had significant residual vision when he answered ‘no’ to the question about his eyesight and there was medical evidence that in 2010 the member had no expectation of going blind.
The Tribunal was satisfied there was no fraudulent misrepresentation when he applied for the additional six units of cover. The member had answered the question honestly.
In these circumstances, the Tribunal decided to set aside the insurer’s decision and substitute its own that the insurer pay the trustee the six units of underwritten cover together with interest in accordance with the ICA. Similarly, the trustee was required to pay the amount received to the member within a reasonable time period
This case concerns the trustee’s decision to not compromise (settle) the complaint of a member who was complaining about higher insurance costs (amongst other matters) as a consequence of a successor fund transfer (SFT).
In the member’s submission he wrote:
“I do not believe that either [the Former Fund trustee] or [the Trustee] has acted in my best interest – a basic requirement for all insurers and super fund providers. They knowingly transferred my fund without me signing any permission for that to happen on the basis of a group decision in the interest of the bulk of members generally. In my case that was not beneficial”.
The former fund trustee provided the member with advance notice of the SFT (in accordance with legal requirements) and during that period the member could have exercised his choice to transfer to another fund. The trustee’s notice provided information about the increased insurance costs explaining that the costs were going up as the new fund did not use unisex premium rates.
The words ‘successor fund transfer’ are defined in the Superannuation Industry (Supervision) Regulations 1994 to mean a fund that confers on the member equivalent rights that the member had under the original fund in respect of the transferred benefits and before the transfer takes place the two trustees must be in agreement that this is so.
APRA has given guidance to trustees around conducting an SFT. In this guidance the regulator notes that in addition to satisfying the requirements of the regulation a trustee has to act in the best interests of the members as a whole and that it is important to identify all legally enforceable rights under the fund’s governing rules, general law and legislation. Some rights may be alterable while others not.
APRA’s guidance also states:
“that the assessment of ‘equivalent rights’ means that the members’ rights in the receiving [fund] are required to be equivalent, but not equal, to their rights in the transferring [fund]. Accordingly, APRA expects a transferring [trustee] and a receiving [trustee] would undertake the assessment of equivalent rights on a ‘bundle of rights’ basis. In determining which rights are to be bundled and considered together, APRA expects a [trustee] would give appropriate weighting to significant rights and the materiality of any changes to individual rights. APRA considers that a ‘line by line’ comparison of every right is unlikely to be required”.
Trustees also need to consider the difference between a ‘right’ and a ‘feature’ noting that the features across two funds can be different without impacting the SFT equivalency analysis. APRA are of the opinion that it is permissible to consider equivalent rights based on groups of members with common rights.
The Tribunal noted that it was unable to deal with complaints that relate to the management of the fund as a whole. The decision around the SFT related to the group of transferring members and was not a decision with respect to the member individually. The Tribunal went on to note that the trustee was not bound to act in the member’s individual best interests when deciding whether or not to do the SFT. Rather, the trustee was obliged to ensure that the transfer met the legal requirements.
In VBN and Ors and Australian Prudential Regulation Authority and Anor  AATA 710 the best interests duty was discussed and it was held:
“The fact that it is not in the best interests of one group of Members does not necessarily mean that the Trustee has not acted in the best interests of the Members as a whole or that it acted as a prudent person. Regard needs to be had to the outcome for all Members”.
The Tribunal acknowledged that the change in insurance premiums did have a significant adverse impact on the member due to rates no longer being calculated on a unisex basis. Over 60 year old males were particularly affected by the change but on an overall basis the new insurance arrangement was in the best interests of the members as a whole because fund members’ premiums were not being subsidised by other members.
The Tribunal decided that the decision of the trustee to not settle the member’s complaint for the increase in insurance costs after the SFT had taken place was correct.