Solely Molely

Financial Newswire’s life/risk expert, Col Fullagar writes that the ruling in a recent court case provides a sober reminder of the subtle nuances of policy wording and the importance of considering all possible claim conditions under the policy …………

BACKGROUND

May 2014 – Mr R applied for insurance that included Total and Permanent Disability (“TPD”) Any Occupation cover. The relevant definition was:

“ …… solely because of a Sickness or Injury, the Life Insured has not been working in any occupation for three consecutive months and, in our opinion, after consideration of medical and any other evidence, is incapacitated to such an extent as to render the Life Insured unlikely ever to be able to work in any occupation for which they are reasonably suited by training education of experience ………. “

As part of his application, Mr R represented that he had never had or received medical advice or treatment for back or neck pain.

In September 2014 – Mr R’s policy started.

From July 2015 to June 2016, Mr R worked as a spray painter and panel beater.

In June 2016, Mr R was involved in a motor vehicle accident which caused severe injuries to his neck and shoulder.

In May 2017, Mr R ceased work to undergo cervical spine surgery. On medical advice, he has not worked since.

In September 2017, Mr R made a claim under his TPD insurance for “compression of spinal cord C5/C6” and “tear in left shoulder”

In April 2018, and during the claim assessment process, the insurer became aware that Mr’s representations in regard to back and neck pain were incorrect as he had received medical advice and treatment for both prior to 2014. As a result, the insurer exercised its rights under Section 29 of the Insurance Contracts Act 1984 and retrospectively applied a cervical spine exclusion to the policy:

“No benefit is payable under this policy for any claim resulting directly or indirectly from any disease or disorder of the cervical spine, including its intervertebral discs, nerve roots or supporting musculature or any combination thereof”.

The exclusion went on to clarify:

“This exclusion does not apply where, in the opinion of independent medical assessments acceptable to (THE INSURER), the disability was not to any extent caused by, or attributable to, directly or indirectly, any preexisting condition relating to the excluded disease or disorder.”

The insurer then proceeded to decline the claim by way of reliance on the cervical spine exclusion.

Mr R commenced proceedings against the insurer indicating in part that, notwithstanding the cervical spine exclusion, the shoulder injury of itself satisfied the relevant definition.

INSURER (V) COURT POSITION

Citing the wording of the relevant definition, the insurer indicated Mr R was required to prove:

• He was incapacitated to the relevant degree; and
• The incapacitation was solely because of sickness or injury.

The insurer then asserted that, in the case of Mr R “ …. incapacity arises from a constellation of symptoms, some of which derive from the neck and some from the shoulder … (and) ….. the causes are concurrent and interdependent, such that the court cannot be satisfied that, in the absence of the cervical spine injury, Mr R would be totally and permanently disabled.”

Additional to the above, the insurer maintained that even if the causes were not interdependent, any claim arising “directly or indirectly” from the cervical spine is excluded and thus, “ …. if there is ANY connection at all between the incapacitation and the cervical spine, the claim will be excluded.”

Finally, the insurer asserted that the policy required Mr R to be incapacitated for work “solely because of sickness or injury” and that no benefit was payable for any claim resulting from any disease or disorder of the cervical spine unless “the disability” was not to any extent caused by or attributable to the pre-existing condition. To the extent that “the disability comprises all and any injuries that contribute to the incapacity and Mr R’s overall incapacity comprises both neck and shoulder injuries, and the neck is a pre-existing condition, he cannot recover.”

 The insurer was essentially relying on an old English doctrine to deny the claim, the so-called ‘Wayne Tank Principle’ whereby if there are two or more proximate causes of damage, one which is covered by the policy and one which is excluded, the exclusion applies to the whole of the claim. This decision had never been ruled upon in a TPD claim.

However, the court saw it differently ……..

“(THE INSURER)’s interpretation of the exclusion clause does not, in my view, express the intention of the parties. Somewhat paradoxically, on the (INSURER’S) submission, Mr R could recover if he fractured his cervical spine and was rendered paraplegic because his disability in that event – paraplegia – although affecting the same body part, would not be to any extent caused by the pre-existing condition. But on (INSURER)’s analysis, injury to almost any other body part would not be covered because his disability would inevitably be impacted by his pre-existing spinal condition.”

 “To recover, Mr R must be able to establish that he is unlikely ever to be able to work in any occupation solely because of a sickness or injury. The exclusion clause requires that the disability be caused by something other than the pre-existing disease or disorder.”

 “The wording of the policy does not mean Mr R is precluded from recovering if his shoulder injury alone is sufficient to render him incapacitated for work.”

 In summary, the Court found that albeit the retrospectively applied cervical spine exclusion applied to the claim;

• Mr R was not required to prove that none of his symptoms were caused by problems associated with his cervical spine,
• Mr R was entitled to rely on his shoulder injury to recover under the policy if solely because of the shoulder injury he was incapacitated for work to the relevant degree, and
• Once Mr R established on acceptable evidence his incapacity for work on the basis of the shoulder injury alone, the onus was on the insurer to provide evidence of the physical requirements of an occupation which comprised tasks that Mr R had the capacity to perform. The insurer proffered no such evidence.

(Rich v TAL, 2024, VCC 1844)

IMPLICATIONS

• Commonsense

Whilst arguably, and from a lay perspective, commonsense prevailed, to the extent the matter was debated in court there were no guarantees of such.

• Precedent Set

This case will have implications in support of insured’s who concurrently suffer from separate and distinct claim events where one is excluded under the policy terms ie effectively countering the Wane Tank Principle.

• Adviser Takeaways

The irony in this matter is that there appears little different the adviser could have done; maybe there might have been better disclosure but who is to say the application process was not entirely robust.

It could well be that yet again, when it comes to risk insurance, the Latin Maxum “Crapus Happens” will sometimes apply.

• No Winners

Yes, the ruling went in favour of Mr R, however his victory was far from absolute. He ceased working in 2018, but it was more than 6 years before he benefited from the insurance he effected that was supposed to provide “peace of mind.” How he survived financially and emotionally in the intervening period is not publicly known.

The insurer certainly “lost” with not only the ruling going against them but also an order that it pay interest on the insured sum, as well as its own and a percentage of Mr R’s costs totalling in excess of $1 million.

The industry reputation and adviser confidence levels no doubt took a hit.

As the Prince said at the conclusion of Romeo and Juliet (Act 5, Scene 3, Line 293) “All are punished”

Col Fullagar is the principal of Integrity Resolution Pty Ltd