Caution to insurers; deferring assessments requires reasonable bases
A decision which analyses when it becomes unreasonable for an insurer to withhold payment of a TPD benefit as it conducts its investigations into the claim.
When it will become unreasonable for an insurer to withhold payment of a Total and Permanent Disablement (TPD) benefit and when an insured’s entitlement to interest under s 57 of the Insurance Contracts Act 1984 (Cth) accrues.
Ms Brown was employed full-time as a clerical worker. As part of her employment, she was entitled to certain benefits including cover under a group life insurance policy (Policy). Relevantly, the Policy provided:
- An entitlement to lump sum benefits for TPD where ‘The Insured Person is unable to follow their usual occupation by reason of Illness or Injury for 3 consecutive months and in our opinion, after consideration of medical or other evidence satisfactory to us, is unlikely ever to be able to engage in any Regular Remuneration Work for which the Insured Person is reasonably fitted by education, training or experience’; and
- That an Insured Person is engaged in Regular Remuneration Work if ‘they are doing work in any employment, business, profession or occupation. They must be doing it for reward, or the hope of reward of any type. The Insured Person is also considered to be engaged in regular remunerative work if they are on Employer Approved Leave’.
On 30 March 2012, Ms Brown ceased her employment and all work as a result of an arthritic condition. Approximately one month later, she made a claim for TPD under the Policy with respect to the arthritic condition and on 10 December 2012, she provided the respondent with documents which Ms Brown considered were sufficient for the respondent to assess her TPD claim. These materials included a report from Ms Brown’s consulting rheumatologist dated 17 September 2012, which stated that Ms Brown was unlikely to return to the work that she was reasonably suited to, given her education, training or experience.
From late 2012, the respondent conducted its own investigations into Ms Brown’s condition, including obtaining an IME report in February 2013. The IME report noted, amongst other things, that Ms Brown’s symptoms would prevent her from returning to work in the next 3 – 6 months, but that she had a good long term prognosis and she was fit to undertake her normal job on a part time basis. Further reports were then obtained from Ms Brown’s treating doctors, which questioned the consulting doctor’s opinion on Ms Brown’s capacity to work. One of the further reports dated 29 January 2014 confirmed that Ms Brown’s capability to work could only be determined after further therapies were tried.
The respondent ultimately extended indemnity to Ms Brown and the TPD benefit was duly paid on 21 January 2015 (just under 3 years after Ms Brown made her claim). Whilst Ms Brown accepted the respondent’s indemnity decision, she commenced proceedings against the respondent in the Federal Court alleging, amongst other things, that from 21 December 2012, the respondent had all information and material necessary for it to assess her TPD claim under the Policy; it was unreasonable for the respondent to have withheld payment from this date; and she was, therefore, entitled to interest for the period from 21 December 2012 to 21 January 2015 under s 57 of the ICA1.
The decision at trial
At trial, Ms Brown argued that under s 57(2) of the ICA, the respondent’s liability to pay interest on the TPD benefit arose once it had received her claim for the benefit and a reasonable time for it to investigate and determine the claim had expired. Ms Brown alleged that a reasonable time for the respondent to determine the claim was 21 December 2012, which was equal to 10 business days after the respondent had received Ms Brown’s application and original supporting medical evidence. Ms Brown argued in the alternative that the claim should have been determined by 19 November 2014, being 10 business days after the respondent received a letter from her solicitors confirming the supplementary findings of Ms Brown’s consulting rheumatologist. The period of 10 business days corresponded with the maximum time prescribed under the Life Insurance Code of Practice for an insurer to notify an applicant of a decision.
In response, the respondent argued that its liability to pay interest on the TPD benefit under the ICA only arises if Ms Brown can establish that it was unreasonable for it to withhold payment prior to the date the payment was made and it asserted that Ms Brown was unable to establish this because it was not unreasonable for it to withhold payment until 21 January 2015 (shortly after it received Ms Brown’s consulting rheumatologist’s final report). The respondent went on to argue, amongst other things, that it was entitled under the Policy to require Ms Brown to attend a medical examination at its discretion, including an IME; its obligation to pay the benefit was subject to proof being provided to its satisfaction; and its duty of good faith, including to act reasonably, did not require it to prefer the opinion of Ms Brown’s treating doctor over the consulting doctor who prepared the IME report.
The court largely accepted the respondent’s position, noting that the respondent was entitled to seek and receive its own professional assistance and the possibility of Ms Brown being able to participate in part-time work (raised in the IME report) and the possibility of Ms Brown’s condition improving through further therapies (raised in Ms Brown’s rheumatologist report dated 29 January 2014) were relevant considerations (noting the above definition of ‘Regular Remunerative Work’). However, Allsop CJ formed the view that in 2014, given Ms Brown's state of distress about the matter and that she was in real physical pain, the respondent should have acted with greater despatch. His Honour found that had the respondent acted in this way, it would have been in a position to finalise the coverage decision by mid-October 2014 (about 3 months earlier than its actual decision). Allsop CJ held that it was unreasonable for the respondent not to have reached its decision by 15 October 2014 and his Honour went on to hold that Ms Brown was entitled to interest under s 57 of the ICA from 15 October 2014 to 21 January 2015.
In reaching this conclusion, Allsop CJ noted, of relevance, that:
- The respondent was required to act reasonably, timeously and in good faith and given Ms Brown’s circumstances, these requirements called for the respondent to appreciate and act with a reasonable degree of despatch;
- There was some inconsistency in the IME report, namely that the consulting doctor’s 3 – 6 month prognosis was that Ms Brown would be unable to return to work, but that she was presently fit for part-time work. In these circumstances, the respondent acted appropriately in seeking the views of her treating doctors, but there was a point in which, having not sought a further opinion from the consulting doctor, the respondent should have preferred the treating doctors’ opinions; and
- In this case, it was impossible and unnecessary to examine each individual step taken by the respondent in 2014 and early 2015, but rather an overall approach was required and appropriate.
Implications for you
The decision should provide some comfort to insurers that where they are acting reasonably, timeously and in good faith, they can defer the determination of a claim (including for potentially extended periods) until their investigations are complete and a concluded view on indemnity can be reached. It is important that where there are apparent delays in the claims handling process, insurers can properly explain these.
The decision is also a reminder that:
- A claimant’s history, ongoing distress and the nature of their condition are relevant considerations for insurers and that insurers need to be mindful of these when investigating and assessing a claim; and
- There will be occasions on which it is not reasonable for an insurer to prefer the medical evidence of a consulting doctor over the claimant’s treating doctors.
 Section 57 of the ICA imposes an obligation on insurer to pay interest where it is liable to pay a person an amount under a contract of insurance or under the ICA and subsection 2 goes on to provide that ‘The period in which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount…’.