In this case the Superannuation Complaints Tribunal (Tribunal) consider if a delay of 778 days to assess a total and permanent disablement (TPD) claim was unreasonable and, if so, if the member was entitled to be paid interest under the Insurance Contracts Act 1984 (Cth) (ICA).
The member was a 53 years old graphic designer who lodged a TPD claim in April 2016 that was accepted by the insurer as payable on 16 August 2018. This was a complex disablement claim, but how much time was a reasonable timeframe for the insurer to make a decision? While not really a critical fact in the case, the insured amount was substantial at $1,438,164.32.
The member suffered from chronic fatigue syndrome which had progressively got worse over time. In summary, the medical evidence was that:
- “he could not do any of his duties in relation to his occupation” – Dr CF in April 2016;
- the member “fulfils all the criteria for Chronic Fatigue Syndrome” – Dr FL in May 2016;
- “there was a high probability that he would not be able to perform the duties of a graphic designer or any of the roles listed in the Employment Report” – Professor AL in May
- he had “no current work capacity” – Associate Professor MR in April and
- he had no physical cause for TPD – Dr PY in March 2017.
With the exception of Dr PY mentioned above, the evidence established that by mid-2016 the member was unfit for work and would remain so. This was the view of the Tribunal, and that opinion was strengthened by the fact the insurer had sought an additional report from Dr CF in September 2017, and that doctor’s reply, on 3 October 2017, provided no additional information. The insurer sought no further medical information but did not accept the claim until August 2018. Why?
The member joined the fund in December 2004 and completed a Declaration of Good Health with a former insurer on 22 February 2005. The insurer on 1 March 2007 agreed to accept the member’s TPD and death cover as a transfer on the same terms as initially determined by the former insurer. One of the issues that became a focus for the Tribunal was whether the insurer was entitled to rely on any fraudulent disclosure or misrepresentation to the former insurer as a means to avoid the contract and, in that context, whether it was reasonable to check carefully the disclosure made in 2005.
The insurer argued that it was entirely reasonable for it to carefully check the 2005 disclosure because if there had been any putative non-disclosure or misrepresentation, it would have avoided the claim under section 29 of the ICA. This was a complex claim “which in the circumstances required appropriate investigations, and where the receipt of some information initiated requests from other organisations, persons and practices”. On this basis, the insurer submitted its decision to not pay interest in accordance with section 57 of the ICA was fair and reasonable.
The Tribunal rejected this argument on the grounds it was not the law. This is because on 1 March 2018 the Federal Court in Shama v LGSS Pty Ltd  FCA 167 held an insurer cannot rely on disclosure given to another insurer to avoid a contract under section 29 of the ICA. Put plainly, the duty of disclosure was owed by the member to the former insurer not the insurer. The Tribunal also noted that the Australian Financial Complaints Authority in cases numbered 613562 and 619820 of 11 July 2019 had reached a similar conclusion.
The Tribunal stated that the insurer’s misconceptions “had substantially interfered with the insurer’s ability to concentrate purely and simply on the medical evidence in accessing the TPD claim in 2016”. It went on to hold that the TPD claim should have been able to have been determined nine months after lodgement—29 January 2017. Accordingly, interest was owing from 29 January 2017 to the date of payment under the ICA, and since that date at the Reserve Bank’s cash rate. The trustee was required to promptly check the accuracy of the insurer’s interest calculations.
Case number – D19-20 72
This case concerns a dispute about the quantum payable as a monthly income protection benefit. The member worked casually as a deck officer on a ship which involved significant periods at sea followed by long breaks at home, and that raised interesting issues around the quantum of his annualised salary under the policy terms.
The member first consulted his doctor on 25 October 2016 regarding pain and an enlarged left testicle. This was investigated and on 10 January 2017 he was diagnosed with testicular cancer requiring surgery and chemotherapy. His cancer was further complicated by pulmonary emboli and he was unable to be graded as fit for sea. He was clearly entitled to the benefit based on the available medical evidence.
The policy provided a monthly benefit that was the lesser of:
- 75 per cent of the insured member’s income; or
- $20,000; or
- the amount insured.
The trustee calculated the premiums payable based on its records of the annual income of the member. The member’s tax return for 2015/2016 showed a taxable income of $182,612 but that was the annualised amount over the financial year not what the policy terms required for calculating the benefit payable to a casual worker.
The member had worked very hard doing basically back to back shifts on vessels so he could then take a long break over the Christmas period. His last day at work was 20 October 2016 but this was simply rostered time off. A few days later he saw his doctor but it was not until a statement was provided by a doctor in February 2017 for the purpose of putting in a claim that it was clear he was unfit for work from 10 January 2017. The policy provided that to determine his income you had to calculate the annualised income over the 12 months prior to the date of disablement – here 10 January 2017 when he was unfit to work at sea.
Unfortunately for the member, this included a large amount of time when he was receiving no pay due to being rostered off. The 12 months prior to 10 January 2017 resulted in an annualised income of $119,744.91 and that meant a monthly benefit of $7,486.06 which was significantly lower than the amount he expected.
The member pointed out to the Tribunal that he had relied on correspondence from the fund which advised him he had an annual income protection benefit of $126,000. He had borrowed money to pay for his cancer treatment based on what he expected to receive. The Tribunal found that it was not possible to set out in a letter all the terms that may ultimately be relevant to any particular member. That was the role of the PDS and the Tribunal satisfied itself that the PDS told the member the amount he could expect to receive in the event of a claim. Accordingly, the Tribunal agreed with both the insurer and the trustee that the amount payable was calculated correctly in accordance with the policy terms.
Case number – D19-20 77