The farting dog

Financial Newswire’s life/risk expert, Col Fullagar discusses the smelly situations which can arise around policy terms and conditions and adviser interpretations.

Risk insurance is sometimes represented as providing “peace of mind” in so far that when it is in place the parties to the policy are assured that, if the particular event being covered was to occur, the policy will respond and provide the financial outcome needed to overcome the loss incurred.

Notwithstanding representations made, both clients and advisers know there are policy terms and claim conditions that need to be satisfied, and a healthy scepticism is often retained about how the process of claiming will manifest but few expect a claim will result in the need to engage a legal representative, commission a full legal review and commence court proceedings only to then find the policy does not respond as believed.

Better to be caught in a confined space with a farting dog than risk going down that path ………..

Thus the concern when a financial adviser recently espoused that because his client had only ever worked in one occupation, his Any Occupation TPD cover should work much the same as Own Occupation.

A court case of several years ago highlights the problem with this logic.

Background

Mr C was 38 years old, and he worked as an installer of sprinkler systems.

In November 2006 Mr C started to have back problems.

In February 2007, whilst lifting some machinery, Mr C twisted and felt significant pain in his lower back. He continued to attend the workplace but did not work.

In March 2007 Mr C had a third accident which caused him to cease work.

Mr C had TPD insurance inside his superannuation, the definition for which was:

“The insured person is unable to follow their usual occupation by reason of accident or illness for six consecutive months and in our opinion, after consideration of medical evidence satisfactory to us, is unlikely ever to be able to engage in any Regular Remunerative Work for which the insured person is reasonably fitted by education, training or experience.

“An Insured Person is engaged in Regular Remunerative Work if they are doing work in any employment, business or occupation. They must be doing it for reward – or the hope of reward – of any type.”

Mr C lodged a claim, but the insurer rejected it citing Mr C was capable of working in an occupation for which he was reasonably fitted, etc. The trustee supported the insurer’s decision, so Mr C commenced legal proceedings.

As an introduction to his findings, the Judge made it clear that:

“if the Court takes a different view of the facts, it does not substitute its view for that of the Trustee; the decision of the Trustee must be examined to see whether it complies with the duties it owed to (Mr C)”

The Judge continued:

“I pass now to the second question …. namely that in the opinion of the insurer whether (Mr C) is ‘unlikely ever to be able to engage in any Regular Remunerative Work for which (Mr C) is reasonably fitted by education, training or experience.’”

To assist in the interpretation of Regular Remunerative Work the Judge cited two previous rulings:

“The clause requires unfitness to work, without distinction between full time and part time work other than by regard to the work which the member is reasonably capable of performing by reason of education, training or experience.”

(Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2011) NSWCA 204)

“…there does not seem to be anything unreasonable in construing the contract as providing that a person who is capable of undertaking regular part-time work is not totally and permanently disabled” and “The onus is on the plaintiff to show that he is not able to do any part-time work …” but “the work must be regular work not casual”

(Hannover Life Re of Australasia v Dargan (2013))

The Dargan case also ruled on the issue of “retraining and further education”, i.e. “there is no bar to the finding that work is within the plaintiff’s education, training or experience that a short qualifying course of training or retraining may be required.”

In summary, the Judge formed a view that:

• an ability to be able to undertake regular, part-time as distinct from casual work; or
• an ability to be able to easily retrain to another occupation,

could preclude an eligibility for a claim payment under the particular definition.

Moving on from the interpretation of the definition, the Judge considered the medical reports tendered in evidence.

“…it is fair to remark that some of the doctors retained by the insurer seem to be a bit too optimistic as to (Mr C’s) chances of obtaining even part-time employment. Whether this remark is accurate or not, the fact that the insurer has had such advice from well-qualified medical experts means that it was entitled to act upon such advice.”

“In view of all of this, it would be quite reasonable for (a trustee) to come to the view that (Mr C) was not totally and permanently disabled.”

In summary:

“I am not the person who decides whether the plaintiff is totally and permanently disabled…….The Court must focus on whether the decision of the insurer or the Trustee or both was so unreasonable that a reasonable person in that situation could not have made it.”

“I cannot be satisfied that the plaintiff has established that the Trustee’s decision or the Insurer’s decision were unreasonable. There was medical evidence both ways. Although some of the comments made by the (insurers) doctors seem to be a bit optimistic as to the plaintiff’s chances of obtaining even part-time employment.”

The ruling:

“I do not consider that the plaintiff has demonstrated that the Trustee failed in its duty to deal with the claim appropriately…… the plaintiff’s case must be dismissed with costs.”

(Source: Chapman v United Super Pty Ltd (2013), NSWSC 592 (22 May 2013)

Considerations Arising

A number of interesting and somewhat challenging considerations arise out of this case. Some are listed below but there are no doubt others.

• Full-time (v) Part-time (v) Casual

Many might believe that if they are working in an occupation on a full-time basis their Own Occupation and Occupations for which they are reasonably suited are similarly full-time. Further, many occupations simply do not lend themselves to part-time work. Jokes aside, there are not too many part-time CEO’s or business owners, for example.

Thus, if a claim was denied because the insured was capable of working part-time this might be seen as a foul outcome with the position being further exacerbated when it is appreciated that the hours of part-time work are not made clear, i.e. it simply needs to be regular.

• Retraining

To assume the phrase “suited by training, education and experience” always refers to the insured’s past might just be doggone wrong in so far that the particular circumstances of the insured are such that the insured is deemed capable of undertaking a “short qualifying course of training or retraining” that would render them able to work in another occupation on a full or part-time basis.

• Independent Medical Examinations

“…it is fair to remark that some of the doctors retained by the insurer seem to be a bit too optimistic as to (Mr C’s) chances of obtaining even part-time employment.

Optimism on the part of the insurer funded independent medical examiner was apparently seen in a paw light by the Judge but still considered on its merit bearing in mind the qualifications of the examiner.

Summary

Some may believe that all risk insurance policies are much the same these days and, even when differences exist, they can be safely categorised, but there are some subtle twists to this:

• even if current retail products are either much the same or can be categorised, which is debateable, there are many legacy products in force with many and varied wordings;
• will one insurer interpret the “much the same” policy wording in “much the same” way as another insurer or the courts; and
• will the “much the same” interpretation survive the test of time, a change in management or a subsequent court ruling?

If these subtle twists exist, which it appears they do, and they can lead to not-so-subtle differences in policy interpretation, which it appears they can, the challenge for the adviser is to work out how to represent the various policy machinations in a way that facilitates an informed decision on the part of the client whilst keeping the adviser out of the farting dog’s way.

At the risk of being howled down, the writer’s view, which it is important to note is not legally qualified, is to stick to the generic and avoid the specific and, in the absence of definitive knowledge, avoid definitive statements. Further, there is merit is telling it like it is.

What might this look like …..

“There are two broad categories of TPD definitions – Own Occupation and Any Occupation for which you are reasonably suited by training, education and experience. In considering these, it is difficult to predict how an insurer will interpret what is your Own Occupation and/or what is an Occupation for which you are reasonably suited, etc., because of the number of variables such as duties, qualifications, age, hours of work and so on.

 The best I can do is say that, in general terms, meeting the former definition would be easier than meeting the latter.”

Whilst the client may hound you for more detail, to go fur-ther not only exposes the olfactory system to harm but could also lead to being legally bitten.